Earnings, Karnataka exit polls to decide market trend; 3 stocks can give up to 21% return in short term

Overall, next week's trend will be decided on the basis of quarterly earnings, trend in global markets and exit polls of Karnataka elections.

 

Benchmark indices ended on a negative note on Friday as Nifty closed below 10,650 zone. Midcap and small cap counters continued to remain under pressure.

On sector front, Metal, Energy, IT stocks witnessed selling pressure while selective Banking and Financial stocks ended in green.

The coming week will be quite important due to quarterly earnings and Karnataka elections.

ICICI Bank will announce Q4 earnings on Monday. Eicher Motors will announce Q4FY18 results on Wednesday. Zee Entertainment, Asian Paints and Titan will announce Q4 numbers on Thursday.

On Monday, Prime Minister Narendra Modi will address meetings in Raichur, Chitradurga and Kolar and on Tuesday in Vijayapura, Mangaluru and Bengaluru. PM Modi will visit Nepal on Friday.

Fortis Board will meet on Thursday to decide on binding bids.

Saturday will be quite important day as Karnataka will go for polling and it’s exit polls will drive the sentiments of Indian stock market.

Market looks weak especially after breaking key important levels of 10,650 and 10,620. Now, one can look at 10,550 levels on a downside and 10,680-10,780 levels on upside. Overall, next week's trend will be decided on the basis of quarterly earnings, trend in global markets and exit polls of Karnataka elections.

Here is the list of three stocks that can give up to 21 percent return in short term:-

Prakash Industries: Buy | Target – Rs 235 | Return – 15%

Prakash Industries is a low cost steel producer having an integrated steel plant at Champa, Chhattisgarh. The sponge iron kilns installed at Champa work on latest SL/RN technology developed by German company Lurgi. SL/RN is the only renowned technology in coal based Sponge Iron manufacturing.

Prakash Industries is self reliant in power through its captive power plant at Champa, with existing capacity of 230 MW. Additional 15MW capacity is to be commissioned by September 2018 for upcoming capacity in steel. For Iron Ore requirements, Prakash Industries owns mines at Sirkaguttu (Odisha) & Kawardha (Chhattisgarh). It has secured 100 percent requirements of coal through long term coal linkages for next 5 years.

Prakash Industries is a low cost, fully integrated steel producer. It has linkages for coal up to 1.56 MTPA for next 5 years. Post regulatory clearance, two third of Iron Ore requirement which is currently procured from outside will be fulfilled from company owned mines. Sirkaguttu Iron Ore mine is estimated to start in April 2018 while Kawardha mine in April 2019.

Currently running at 1 mtpa , Prakash Industries is doubling its steel capacity to 2 mtpa in a phased manner. Installation of 6th kiln will add 0.2 MT additional capacities by September 2018. In next 5 years management has a vision to become 3MTPA company.

We are recommending a Buy on back of full utilisation of steel capacity, strong steel prices in Indian market & uninterrupted supply of iron ore from Odisha with target price of Rs 235.

PFC: Buy | Target – Rs 102 | Return – 21%

Power Finance Corporation (PFC) is a specialiSed in power sector financing, providing fund and non-fund-based support for development of power projects in India. The company’s project financing activities are primarily focused on the thermal and hydro-energy generation areas.

In addition, it finances renovation and modernisation of power projects, projects related to transmission and distribution of power. It has also initiated financing of projects based on renewable energy sources such as bio mass and wind power generation.

PFC’s clientele comprises state power utilities, central power utilities, private power utilities, joint sector power utilities, and power equipment manufacturers. Of total loan assets around 65 percent of advances were extended to state power utilities, 8 percent to central power utilities, 17 percent to private power utilities, and 9 percent to joint sector power utilities.

Its Q3FY18 earnings were supported by provisions write-back of Rs 220 crore given upgrades from stress pool. In addition to it, Q3FY18 marks the quarter where upgrades have been crystallising on a guided path plus, NNPL plus restructured, also known as stress pool, fell to 26 percent from 29.5 percent on a QOQ basis, a trend management believes will sustain in future.

Given that large part of stress pertains to state utilities, where recovery is just a matter of time we believe stock is available at a throw away price. It is trading at below band of its historic P/B value band. We are recommending a Buy with target price of Rs 102.

Maan Aluminium: Buy | Target – Rs 155 | Return – 14%

The company manufactures aluminium extruded products, which find use in engineering, construction and architectural applications. Maan Aluminium is one of the India's largest manufacturers and exporters of aluminium extruded products from central India.

During FY17, the company has achieved production of 4854.087 MT as compared to 4557.457 MT during the previous year. Considering the installed capacity of 9000 MT, Maan Aluminium has significant spare capacity to increase production and sales level.

Management has guided for a sale of 9000 MT in 2 years time with increasing capacity level. We believe Maan is at sweet spot. It has already incurred CAPEX and in next two years it is focusing on ramping up of the facilities. It will substantially increase the revenue in coming days.

The future for aluminium and aluminium extrusion in India looks promising with the low per capita consumption in the country coupled with high and good quality reserves of Bauxite. Awareness of the utility of aluminium in various industrial sectors is growing and it provides a lower cost option as to use of various metals in different sectors.

The company has immense growth potential which can be seen in the FY17 numbers. Its sales increased from Rs 190.33 crore in FY16 to Rs 349.56 crore FY17, which is more than double. Most of the growth is attributed to trading, in addition to an increase in export market.

Looking at the FY18 numbers, we are quite positive on this counter and we are recommending it with target price of Rs 155.

MORE WILL UPDATE SOON!!

Earnings, global markets to set the trend on D-Street; 3 stocks with up to 15% return potential

On the macros side we will continue to look at bond yields and crude prices. We believe these are two biggest factors which can dampen the Indian market rally.  

The Dalal Street could watch out for reactions of Q4 numbers of Nifty companies. HDFC, Kotak Mahindra Bank will announce Q4 earnings on April 30. Dabur and Hindustan Media Ventures will post their earnings the next day.

Market will be closed on Tuesday due to Maharashtra Day. So, we will have only four trading days in this week.

On the macros side, the market will continue to look at bond yields and crude prices. We believe these are two biggest factors which can dampen the Indian market rally.

In US and Europe, results season is still going on. Particularly post Caterpillar and GE’s disappointing numbers we will closely watch for coming companies numbers, especially related to old economy.

In FANG stock, Facebook has posted very good set of numbers. We might see some relief rally in high beta US counters on back of this. So, in nutshell, next week's trend will be decided on the basis of quarterly earnings, trend in global markets.

Salasar Techno Engineering | Rating: Buy | Return: 15%

Salasar Techno Engineering enjoys 42% market share and all the major telecom operators are its customers having long term business relationship. The company has technical tie up with Rambol International for manufacturing and designing world class telecom towers of various qualities and range.

The current EBITDA margin is around 10%, which is expected to increase up to 11-11.5% on the back of huge order book, consistent demand and new projects for which the company has already submitted bid.

In FY17 Salasar Techno doubled its galvanizing capacity from 50,000 metric tons to 1,00,000 metric tons. Salasar Techno currently has an EV/EBIT of 9.72%.

At the current market price of Rs 387, company is trading at 11x multiple for FY19. We are recommending a buy with a target of Rs 445.

Vinyl Chemicals | Rating: Buy | Return: 9%

Vinyl Chemicals is a Pidilite group company. It is in the business of selling various speciality chemicals mainly to textile, paints and adhesive sectors. Vinyl Acetate Monomer (VAM) was manufactured in the plant located at Mahad in Raigad District, Maharashtra, India and was sold all over the world. Vinyl had major share of business of this product in India.

During 2007, the said plant was de-merged to resultant parent company Pidilite Industries for strategic reasons. However, the company's main focus remains in its product “Vinyl Acetate Monomer" (VAM). The VAM is now imported/sourced from various Global suppliers and distributed / traded in India.

Vinyl Chemicals India will maintain its major presence in the field of trading of various Speciality Chemicals in future all over the world. Currently, the stock is trading at 20x which we think is quite an attractive level given the bright future prospects and pedigree of Pidilite group.

Vinyl Chemicals will yield maximum benefits from structural changes are happening in chemical industry. Be it a production cuts from Chinese companies or continuously rising demand from Asian conglomerates. Vinyl Chemicals has all the ingredients to outpace the industry growth. We recommend a buy with a target of Rs 131.

Archidply Industries | Return: 13%

Archidply Industries is the flagship company of the Archidply group. The company is a manufacturer of wood panel products and decorative surfacing products.

The promoters of the company have been associated with plywood manufacturing for more than 30 years under the brand ‘Archidply’.

The management was responsible for the turnaround of the Mysore based particle board and plywood manufacturing unit which was shut down for seven years, before being acquired by the Archidply group. The company also has a good track record in executing projects on time.

The company started out with a single plant in Assam and has expanded the business to three facilities in Uttar Pradesh, Assam and Karnataka. The organized plywood industry is growing at a rate of 30 percent per annum driven by increased demand from institutional clients. Retail stores, corporate spaces and hospitality sector have seen huge growth and are fuelling the demand for Interior Infrastructure.

Looking at management pedigree and industry growth we believe Archidply will yield maximum benefits in coming days. We are recommending Archidply with target of Rs 108.

MORE WILL UPDATE SOON!!

Earnings, Karnataka polls to chart market trend; 5 stocks with up to 30% return potential

We expect healthy 15-18 percent earnings growth and bullish on large-caps over the midcaps.

  

We believe recovery track would be backed by better-than-expected corporate earnings FY18 and pro-BJP outcome in Karnataka elections which will shape up the second half performance of the markets.

Domestically we expect healthy recovery in corporate earnings, Pro BJP State elections outcomes followed by Timely, well spread and sufficient monsoon would keep market on optimistic outlook while globally US Trade war saga, Oil prices and raise in FED interest rates scenario can break the markets sentiments on either side. Hence any unpredictable changes in these parameters will trigger market movements going ahead.

Considering the current scenario obviously we prefer to weight (50 percent) on Equity mainly on high quality frontline counters which are fundamentally strong, complying high corporate governance and has health earning visibility. We see many such quality companies have come at very reasonable prices for multiple reason. Accumulating those would be once chance which may not be available in next recovering bull markets.

We believe Mutual fund exposure as a second best to be investing mainly in the sector focused schemes like Pharma / Banks or diversified scheme with 25 percent weight which are best in the downturn scenario.

With respect to bond yields which are currently yielding better as the expected pickup in economic activity and demand for credit will also affect the cost of money in the economy. Therefore we see that the increase in bond yields is unlikely to be reversed significantly in the foreseeable future while the overall economic outlook is positive.

We expect healthy 15-18 percent earnings growth and bullish on large-caps over the midcaps.

Below are the Top five sectors we are optimistic in coming 2-3 years.

1. Capital Goods

2. Autos

3. I.T

4. Financial Services

KEC International | Rating - Accumulate | CMP - Rs 393 | Target - Rs 500 | Return – 27%

KEC International (KEC), the flagship company of the RPG group, is a leading EPC player in T&D Space. KEC has over 7 decades of experience with footprint presence in 63 countries and strong execution capabilities across all the segments. We expect T&D business regains momentum by expanding beyond boundaries and Strong order inflows improving revenue visibility. Energy & Rail– Priorities of the New Government sector in focus: The Govt proposed 100 percent rural electrification by 1st May 2018 which act optimistic for the company’s T&D business and also proposed 3500km of railway lines to be commissioned in FY18 which is good for KEC as it is focusing more on Railway business.

Maruti Suzuki | Rating - Accumulate | CMP - Rs 8,715 | Target - Rs 11,330 | Return – 30%

Maruti has historically built strong brands and that has resulted to maintain the lion's share of small car and support healthy volume growth. New launch like New Swift Brezza, Baleno and IGNIS have performed better than market expectations. Eyes toward electric vehicles: Company plans to introduce EVs as soon as market sets to swift from traditional vehicles to EV segments. It is focusing on hybrid technology, which is a step toward electric mobility. Li-ion battery plant, which is being set-up by JV between Suzuki, Toshiba and Denso, would help to reduce cost of hybrids and EVs. MSIL has plans to expand its Nexa network for the premium segment to 400 outlets by 2020 from 200 currently. We are positive on the space on long term

Bajaj Finance | Rating - Accumulate | CMP - Rs 1,669 | Target - Rs 2,170 | Return – 30%

Bajaj Finance (BFL) has continued to maintain its strong growth momentum with a 35 percent yoy growth in consolidated AUM at INR 779 bn, largley led by consumer and commercial financing. Asset quality during the years was steady. Despite providing in excess of RBI requirements, the company has managed its credit costs well. Segment wise, the company continues to be cautious on SME financing as it continues to witness some pressures in the self-employed mortgages (LAP & SEHL). At currently level asset quality is one the best in the industry along with a comfortable coverage ratio, despite maintaining a growth rate more than 30 percent. We continue to be positive in this space for 2-3 years for healthy returns.

HDFC Life | Rating - Accumulate | CMP - Rs 430 | Target - Rs 560 | Return – 30%

We believe HDFC Life has Unique Positioning in Life Insurance Space with strong parentage and a trusted brand that enhances its appeal to consumers. Consistent revenue growth: Between FY15 and FY17, annualised premium equivalent posted a CAGR of 14.5 percent. The company has a healthy balance sheet with total net worth of Rs44.6bn and solvency ratio of 200.5 percent as of 30 September 2017, above the minimum 150 percent solvency ratio required under the Insurance and Regulatory Development Authority of India or IRDA regulations.

Godrej properties | Rating - Accumulate | CMP - Rs 738 | Target - Rs 950 | Return – 29%

Godrej name is next to quality in this industry. It has different land bank strategy like JV with land owners that reduces its land cost and also ties up with developers as a Development manager which helps it earn 10-11 percent of revenue for branding, marketing and selling of the project. We believe new project pipeline continued to scale up in operation. Godrej have completed the RERA registration of all their projects in Maharashtra, Karnataka, Chennai, Ahmedabad and NCR. Post implementation of RERA, opportunities for new project acquisitions are expected to increase, especially for organised developers. The combination of GST, the Real Estate Regulatory Act, an improving economic environment, lower inflation, and lower interest rates has led to much better affordability and are expected to revive housing demand.

MORE WILL UPDATE SOON!!