Top four Diwali picks by Motilal Oswal securities

The list includes ICICI Bank, Tata Motors, Dr Reddy's laboratories, LIC housing & finance

Motilal Oswal has annouced its top four picks for the diwali season

The list includes ICCI Bank, Tata Motors, Dr Reddy's Laboratories adn LIC housing & finance.

ICICI Bank- Target price Rs1,225

They feel the ICICI banks focus on Credit growth, CASA (credit accounts and saving accounts), Cost efficiency and improving domestic loan growth will help the bank increase its return ratios. They add that Sharp improvement in liability profile and asset quality, and better asset liability management has helped the Net Interest Margins for the BANK from 2.6-2.7% to 3% which as per them are expected to improve further though gradually. They expect Return on Assets (RoA) is likely to remain strong at around 1.6% over FY13-14. Core Return on Equity too should increase from 11% over FY08-12 to around 16% in FY14, led by increasing leverage and strong RoA. They thereby arrive at target price of Rs.1, 225 based on SOTP (Sum-of-the-parts) valuations.

TATA Motors- Target price Rs 349

They feel that Jaguar-Land Drover product action and market expansion will drive 13.4% CAGR growth over FY12-15. On the domestic front they expect revival in the domestic Medium and High Commercial Vehicles segment demand revival in FY14.  Also as Tata Motor to DVR stock is currently trading at 8.5 xs to 5x FY13E and 5.1 xs to 4.2x FY14E consolidated Earnings per share respectively. They arrive at the target price of Rs 349 (FY14 SOTP based) for Tata motors share and Rs. 210 for DVR (40% discount to ordinary).

Dr Reddy’s Laboratories – Target Price Rs 2080

Dr Reddy has guided for $2.7billion revenues and 25% return on capital employed for FY13. They add that Management expects to achieve this guidance (implying a top-line growth of 30% over Fy12) without any major inorganic growth initiatives.
Also the company continues to focus on its five key markets - US, India, Russia, Germany and UK. The US market will be a key contributor led by the commercialization of its pipeline of 80 Abbreviated New Drug Aplications (pending approval) and the contribution from First-To-File and low-competition opportunities.

They thereby expect core EPS CAGR to grow 18% for FY12-14. The stock trades at 19.8x FY13E and 17x FY14E core earnings.

LIC Housing and Finance Ltd - Target Price Rs 300

The company has delivered strong performance, both on growth as well as on asset quality front. However, it consistently disappointed on spreads (one of the key RoA drivers) leading to underperformance compared to the sector. However the brokerage believes the spreads have bottomed out and should likely improve from current levels as the benefits on the cost of funds start accruing.

The company should continue to deliver well on growth and asset quality fronts. It remains well positioned to make the most of the strong growth opportunities in the housing finance industry. Hence they model in 24 percent loan compounded annual growth, 20 basis points decline in margin assumption, average adjusted RoA of around 1.5% and RoE's of around 18% over FY12-14. The stock trades at 2x FY13E Book Value and 1.7x FY14E Book Value.