Samvat 2075 threw up a tough time for equity investors as a host of headwinds - both on global and domestic front kept the markets on shaky ground. While the headline indices - Sensex and Nifty, gave a decent returns in the last 12-month period, the broader market underperformed with huge variation. The S&P BSE Sensex rallied around 12 per cent (as of Wednesday's closing), whereas the S&P BSE MidCap index added only 2 per cent while the S&P BSE SmallCap slipped over 8 per cent during the period, thus making it one of the most divergent years as far as performance differential between indices is concerned.
Even among the large-caps, only a handful of stocks lifted the entire index.
On the global front, US-China trade war concerns, uncertainty around Brexit deal, economic slowdown, volatility in oil prices, and US Fed’s not so unambiguous trajectory on rate cuts kept market participants cautious.
According to Motilal Oswal Financial Services (MOFSL), the three key factors to watch out for in Samvat 2076 would be reducing stress in financial sector, further stimulus announcements by the government to boost consumption and overall economic growth and resolution of US-China trade war.
"We would suggest investors to take this as an opportunity to accumulate quality names for long term. We do believe that the Nifty is richly valued at 20x FY20E earnings, despite several of its constituents trading at a substantial 30-40 per cent discount to their respective long-period average valuations," said Siddhartha Khemka, Research Analyst at the brokerage firm.
Here's a list of stocks recommended by top brokerage houses that are expected to give healthy returns over the next one year.
Affle India | Target Price: Rs 1,348
The market for Affle’s services is vast and growing at a good pace. The early mover advantage gained by the company is likely to sustain for some more time. There is dearth of internet/digital-based companies with proven model and profitability in India. This could mean valuations could remain high even as earnings grow at a fast pace. Recent acquisitions of Vizury, RevX and Shoffr will help strengthen its platform.
Amber Enterprises | Target Price: Rs 1,140
In FY19, Amber registered 29 per cent revenue growth and a robust 52 per cent growth in PAT. Air Conditioners contributed 63 per cent revenue in FY19, while AC Components and Non AC Components contributed 15 per cent and 22 per cent, respectively. Acquisition of Sidwal and its diversified portfolio will give immunity from its usual seasonality of the company. We have estimated nearly 16 per cent revenue compounded annual growth rate (CAGR) in revenue and nearly 37 per cent CAGR in bottom line over FY19-21E. We arrive at a Target Price of Rs 1,140 based upon 20x FY21E earnings.
Apollo Hospital Enterprise | Target Price: Rs 1,629
A leadership position and multi-pronged healthcare delivery model makes AHEL one of the stronger healthcare models. The company owns one of the best integrated business models in the healthcare space with strong management pedigree and healthy mix -- both patient’s type, complexity and higher day care. We feel AHEL will reap significant operating leverage benefits led by maturity of new hospitals & pharmacies and breakeven of retail healthcare format AHLL. We feel investors could buy the stock for a Target Price of Rs 1,629 (52.5x FY21E EPS).
Bajaj Auto | Target Price: Rs 3,447
We believe that the automobile sector may see a gradual comeback, driven by financial stimulus by government, and good monsoon. Bajaj Auto, being the second-largest motorcycle manufacturer of India with robust financial and diversified product mix is trading at an attractive valuation. We estimate 7 per cent revenue CAGR and 8 per cent PAT CAGR over FY19-21E. We recommend Buy on Bajaj Auto for Target Price of Rs 3,447 till next Diwali.
BEML | Target Price: Rs 1,048
BEML is estimated to post topline CAGR of nearly 20 per cent over FY19-21E and bottom line to see robust 85% CAGR over the same period. With strong performance, return ratios would also improve drastically. We believe BEML is a strong play on uptick in mining activity, defence spending, and rail capex. The stock trades at 27.8x FY20E and 17.4x FY21E earnings. We value BEML on 20.5x FY21E earnings and arrive to target price of Rs 1,048. There is a possibility that government may disinvest 26% in BEML along with management control and if the proposed divestment goes through, the stock can get rerated. We recommend Buy on the stock for the Target Price of Rs 1048 till next Diwali.
Deepak Nitrite | Target Price: Rs 348
A favourable demand outlook, ramp up of new capacities, forward integration into downstream products will support healthy revenue growth of 10- 12% p.a. over the medium term after a stupendous FY20. Though DNL has large dependence on one line of products, the stock quotes at a significant discount to other large chemical players like Atul, Vinati, Aarti Ind, SRF etc. We feel investors could buy the stock and add on dips to Rs 275-281 (8.0x FY21E EPS) for a target of Rs 348 (10.0x FY21E EPS).
Fairchem Speciality | Target Price: Rs 569
The market for FSL products is growing by 10-15% per annum. The management expects to grow at 15-20% by gaining market share from others and launching new products. It has initiated two capex projects - a plant to manufacture sterols and higher concentration tocopherols and second, a plant to manufacture bio-diesel using three by-products of its manufacturing process: palmitic acid, monomer acid and residue. The company has spare capacity in existing products giving it considerable room to grow. We feel investors could buy the stock at the LTP and add on dips to Rs 427-431 (9x FY21E EPS) for a target of Rs 569 (12x FY21E EPS).
Garden Reach Shipbuilders & Engineers Ltd (GRSE) | Target Price: Rs 202
The aggregate order book as on FY19 is Rs 21,644 crore, which ensures earnings visibility for many years to come. In line with future plans of Indian Navy and Indian Coast Guard, GRSE is hopeful of winning few more orders in future. While many of the private shipyard companies have high debt, GRSE has cash & equivalents of Rs 1,990 crore as of FY19 (including advances from customers). We have estimated 32 per cent CAGR in revenue and 36 per cent CAGR in PAT with improvement in margin over FY19-21E. The company has high dividend pay-out policy which limits the downside. Stock trades at 9.7x FY21E earnings. We recommend GRSE a BUY at the LTP and add on dips of Rs 160 for Price Target of Rs 202 for next one year.
Muthoot Finance | Target Price: Rs 751
MFL will continue to benefit from its long standing presence and good knowledge of the gold loan segment. Increasing share of non-gold loans would de-risk its portfolio concentration and provide cushion to asset under management (AUM) growth. Also, the same branches would be utilised to cross sell products leading to lower cost-income ratio. Brand building by roping in Amitabh Bachchan as brand ambassador and partnering with IPL team Chennai Super Kings would give it a pan-India visibility. Resolution of overdue gold loan accounts would bring down the NPA levels in the coming years. Although the gross NPA of 3.2 per cent and Net NPA of 1.3% for Q1FY20 are optically on the higher side, longer time allowed by MFL to borrowers before liquidating the collateral is the reason for this. We feel investors could buy the stock for a target of Rs 751 (2.25x FY21E ABV).
SBI Life Insurance Company | Target Price: Rs 965
We expect SBI Life to deliver strong of 21% CAGR in VNB, 26% CAGR in NBP and that with improved margin, which will lead to 17% CAGR in its embedded value. It is trading at 2.6x P/EV for FY21 which is quite an attractive proposition looking at its growth prospects. We arrive at a Target Price of Rs 965 for SBI Life in next one year.
Sudarshan Chemical | Target Price: Rs 460
Over FY19-21E, we expect revenue to see 13% CAGR while net profit may see faster 47% CAGR on the back of 170bps margin expansion and lower corporate tax rate (tax rate reduction to ~25% from previous ~33%). Despite huge capex, the debt-to-equity ratio is expected to remain around 0.5x. Sudarshan trades at 17.2x FY21E earnings. We recommend Sudarshan Chemical a BUY for the Target Price of Rs 460 till next Diwali.
Ultratech Cement | Target Price: Rs 4,980
As the utilisation levels rise for the company and the costs stabilise, the pricing power will improve. We expect 17% revenue, ~28% EBITDA and ~39% EPS CAGR led by its cost leadership, pricing and strong volumes over FY19-21E. Strong revenues and margin expansion would drive robust growth in profitability. The Stock trades at ~12.3x FY21E EV/EBITDA and ~USD 180 EV/MT. We believe, with pan India presence and strong sustainable financials, Ultratech would continue to trade at premium over mid-sized cement companies. Based upon 14.5x FY21E EV/EBITDA, we arrive at a Target Price of Rs 4,980 till next Diwali.
Motilal Oswal Financial Services
ICICI Bank | Target Price: Rs 550
ICICI Bank is better placed in a challenging macro environment, given that it has limited exposure to the newly surfaced stressed names and is well on track to see earnings normalization. We expect the bank to deliver loan CAGR of 17% over FY19-21 and core RoA/RoE to improve to 1.5%/15.5%.
SBI | Target Price: Rs 350
We believe that SBIN is well poised for an earnings recovery led by steady operating performance at the PPOP level, recoveries from NCLT resolutions and normalization in credit cost to 1.9%/1.3% over FY20E/FY21E.
HDFC | Target Price: Rs 2,600
HDFC Ltd is well placed in the current tough liquidity environment, given that it is able raise money comfortably at lower rates and gain market share. We expect HDFC to deliver 14% AUM CAGR over FY19-22, with largely stable NIMs and Core RoA/RoEs of ~1.7%/~14% over the medium term.
Bharti Airtel | Target Price: Rs 415
BHARTI’s cash requirement could reduce due to lower capex intensity and the reduction in interest cost, which should result in FCF breakeven in FY20. We expect ARPU to remain flattish in FY20 and increase by 10% in FY21 led by price actions. We expect consol. EBITDA CAGR of 12% over FY19-21 which has a strong upward bias in case of a price increase.
L&T | Target Price: Rs 1,900
For L&T, we forecast adjusted consolidated EPS CAGR of 23% over FY19-21. Consolidated RoEs should expand to 17.6% by FY21 from 14.6% in FY18. Adjusted for valuation of subsidiaries, core E&C business is trading at FY20/21E P/E of 19.6x/16.1x, which is at a significant discount to its long-term one-year-forward trading multiple of 23x.
HUL | Target Price: Rs 2,265
Four key trends point towards an elevated earnings growth trajectory for HUL compared to the past, such as rapidly improving adaptability to market requirements, recognition and strong execution on Naturals, continuous strong trend towards premiumization, and extensive plans to employ technology, creating further entry barriers. Premium valuations are justified as the company has the best earnings growth visibility in the large-cap Indian consumer space, and also, the highest return ratios so far.
Titan | Target Price: Rs 1,435
The longer-term investment case remains strong as Titan is well placed to grow led by a combination of its own initiatives and regulatory tailwinds. With over 60% of the jewelry segment growth continuing to come from SSSG, operating margins are also likely to improve.
Indian Hotels | Target Price: Rs 176
Indian hospitality industry is set to enter into an upcycle, led by favourable demand-supply dynamics. Given strong presence in high-demand, high-occupancy micro markets, IHIN is well placed to capitalize on the growth opportunities. We expect consolidated revenue/EBITDA CAGR of 9%/25% over FY19-21, supported by ARR growth of 8%.
Mahindra & Mahindra Finance (MMFS) | Target Price: Rs 400
Despite a slowdown in OEM volumes, MMFS has been able to deliver strong AUM growth, driven by its diversification into new product segments (such as pre-owned vehicles and CV/CE) and increasing share in different OEMs. We expect AUM growth to moderate to 14% YoY.
Ashok Leyland | Target Price: Rs 88
Unlike the previous cycles, AL is currently on a strong footing (lean cost structure and net cash balance sheet) and is focused on adding new revenue/profit pools. Valuations are reasonable in view of the downcycle in earnings.
Aditya Birla Retail (ABFRL) | Target Price: Rs 250
Accelerated pace of store addition under Pantaloons is likely to drive healthy 13% revenue CAGR over FY19-21. We expect Pantaloons EBITDA margin to improve 150bp YoY, and Innerwear losses to reduce to INR300m by FY21. Expect PAT CAGR of 68% over FY19-21. This coupled with its healthy FCF and RoCE profile, should allow ABFRL to garner superior valuations.
JK Cement | Target Price: Rs 1,270
JKCE’s capacity expansion will reduce the proportion of inefficient assets. JKCE is strategically well placed to benefit price improvement in the north due to limited supply addition. The white cement business has gained meaningful scale and deserves premium valuations, given raw material scarcity and JKCE’s 40-45% share in the domestic white cement market.
Colgate | Target Price: Rs 1,750
A few factors are in CLGT's favor from the medium-term perspective - (a) the toothpaste market share hemorrhage appears to have abated after three years, (b) there is evident traction driven by herbal and other launches and (c) valuations are relatively less expensive at ~35x FY21E EPS. With return ratios likely to improve further due to better utilization of expanded capacity, the discount to consumer peers should reduce.
Petronet LNG | Target Price: Rs 336
Higher gas adoption from industries and the power sector will likely support volume growth for PLNG. We believe that, due to the Kochi-Mangalore pipeline and Dahej expansion, PLNG’s total volume could grow by ~9/7% in FY20/21. We estimate Revenue/EBITDA/PAT CAGR of 15%/22%/23% over FY19-21.
PI Industries | Target Price: Rs 1,508
PI is set to commence operations at two new plants in FY20, which would act as a key growth driver for its CSM business, providing strong revenue growth visibility. We believe that the acquisition of Isagro Asia for INR3.5b at a valuation of ~15x P/E FY19 bodes well for PI not only from the point of view of synergies but also from valuations. PI boasts of strong balance sheet with debt to equity of 0.04x as of FY19.
Coal India, Motherson Sumi, Page Industries, LIC Housing Finance, Birla Corp
Nirmal Bang Securities
|Stocks names||CMP (In Rs)||Target Price (In Rs)||Upside potential (%)|
|APL Apollo Tubes||1413.95||2020||42.86|
|Indian Metal and Ferro Alloys||172.75||238||37.77|
|Jubilant Life Sciences||567.1||654||15.32|
|The Anup Engineering||463.5||690||48.87|
Kansai Nerolac | Buying Range: Rs 500 - Rs 535
Increasing urbanisation, higher rural income levels and a brief repainting cycle have been the main reason for sustainable decorative paints demand. This coupled with social schemes such as Housing for All and better monsoons (would help in improving rural income) would be a strong trigger for the paint industry. We believe, strong revenue earning CAGR of 16% and 20% in FY19-21E supported by recent corporate tax rate cut.
Supreme Industries | Buying Range: Rs 1,190 - Rs 1,225
We believe, company’s revenue, earning to grow at a CAGR of 13% and ~20% respectively in FY19-21E led by strong volume traction in the piping segment and rising contribution of value added products in the topline (increased from 24% in FY12 to 35% in FY19). Despite capital intensive business, company D/E remained low at 0.2x due to efficient working capital management (~10% sales) and continue generation of free cashflow (average | 200 crore annually in the last 8 years). This has resulted in average RoE and RoCE of ~26% and ~30% respectively in the last 8 years.
JK Cement | Buying Range: Rs 1,020 - Rs 1,080
We derive comfort from the company’s leadership in the white cement business which would continue to support realizations and profitability. The company should also be a beneficiary of the corporate tax reduction. With the commissioning of additional capacity, the company is expected to generate an EBITDA of Rs 1,214 crore in FY21E, implying an inexpensive EV/EBITDA multiple of 8x on FY21E earnings.
United Breweries | Buying Range: Rs 1,300 - Rs 1,335
We estimate the market share for UBL has remained stable at 51-52% of the beer industry. Further, the management expects FY20 volumes to grow in single digits. We expect volumes to grow at 8.5% CAGR in FY19- 21. The company is also a major beneficiary of the recent corporate tax rate cut (FY19 tax rate ~36%) which would improve its profitability and increase the free cash flow generation. UBL’s premium valuations are expected to sustain on better earnings visibility (PAT CAGR estimated at 33% to Rs 996 crore over FY19-21E)
Dabur India | Buying Range: Rs 440 - Rs 470
On the back of improved product mix & robust volume growth, there has been a significant improvement in operating margins from erstwhile 16% margins in FY14 to ~20%+ margins levels. We expect EBITDA margins to improve slightly to 20.7% by FY21E. The company is expected to sustain the growth momentum considering consistent improvement in margins & expected strong earnings growth during FY19-21E.
Axis Bank | Buying Range: Rs 685 - Rs 715
Recognition of substantial stressed account is seen to keep slippages moderate ahead. Given contingent provision & anticipated recovery in large stressed NCLT cases, we expect GNPA ratio to improve to nearly 4% by FY21E. On the valuation front, at the CMP, it trades at ~2x FY21E ABV which is an attractive level.
Tech Mahindra | Buying Range: Rs 700 - Rs 745
With conversion of large deals in enterprise & communication segment, the company’s focus on 50 major customers within the company and outside will be key triggers for revenue growth. In addition, considering most margin headwinds being absorbed in FY20E, we believe FY21E could witness EBIT margin expansion to 13.8 per cent. Hence, we revise the target price to 850/share and maintain our BUY recommendation.
|Stocks name||CMP (in Rs)||Target (in Rs)|
Note: The brokerage recommends buying these stocks with a time horizon of 3-6 months
Axis Bank | BUY | TARGET: Rs 850 - 880 | SUPPORT: Rs 630
The stock in the weekly chart has indicated a higher bottom formation pattern maintaining a good support near Rs 645 levels and has maintained a positive bias with the RSI also improving from the oversold zone. The overall trend is on the rise and we suggest to buy and invest in this stock anticipating a good return for an upside target of Rs 850 - Rs 880, keeping the stop loss of Rs 630.
BEL | BUY | TARGET: Rs 550 - 580 | SUPPORT: Rs 400
The stock has been steadily and gradually on the rise as seen on the weekly chart and is in a trending mode with strength and potential in several occasions as per the channel trendline which is overall in the rising mode. The RSI has been strong with improved bias and we suggest to buy this stock for an upside target of Rs 550 - Rs 580 keeping a stop loss of Rs 400.
MAHINDRA & MAHINDRA | TARGET: Rs 720 - 750 | SUPPORT: Rs 520
The stock has witnessed a decent erosion from the levels of Rs 1,000 to bottom out near Rs 500 levels on the weekly chart and has indicated a strong bounce back with favourable indicators supporting.The RSI has recovered strongly from the oversold zone indicating a trend reversal and has potential for still more upside space in the near future. We suggest to buy this stock for an upside target of Rs 720 - Rs 750 levels, keeping a stop loss of Rs 520.
DABUR | TARGET: Rs 550-580 | SUPPORT: Rs 400
The stock has been steadily and gradually on the rise as seen in the weekly chart and is in a trending mode with strength and potential in several occasions as per the channel trendline which is overall in the rising mode. The RSI has been strong with improved bias and we suggest to buy this stock for an upside target of Rs 550 - Rs 580, keeping a stop loss of Rs 400.
HDFC LTD | BUY| TARGET: Rs 2,450- Rs 2,480 | SUPPORT: Rs 1,900
The stock has indicated a rising trending channel pattern in the weekly chart with series of higher bottom formation patterns with the current base formed near Rs 1,950 levels as of now and has witnessed a decent reversal which has opened the space for upside target of Rs 2,450- Rs 2,480 levels. The RSI also has suggested a trend reversal to maintain a positive bias and we suggest to buy this stock for an upside target of Rs 2,450- Rs 2,480 levels, keeping the stop loss near Rs 1,900.
MOTHERSON SUMI | BUY | TARGET: Rs 140 - Rs 150 | SUPPORT: Rs 90
The stock has eroded much of its gain in the recent past and has taken support and bottomed out near Rs 91 levels as indicated in the weekly chart and with also the RSI reversing from the highly oversold zone has signaled a buy to improve the bias and has potential for further more upside targets. We suggest to buy this stock for an upside target of Rs 140 - Rs 150, keeping the stop loss of Rs 90.
SBI | BUY | TARGET: Rs 320-340 | SUPPORT: Rs 230
The stock has underperformed for quite some time but has attained the bottom support zone near Rs 240 levels which forms the lower trendline support of the channel pattern in the weekly chart to imply a strong reversal mode from here on with a decent risk reward ratio. The RSI also is hovering around the oversold zone and a trend reversal would signify a strong pullback for further more upside targets. We suggest to buy this stock for an upside target of Rs 320 - Rs 340, keeping the stop loss of Rs 230.
TCS | BUY | TARGET: Rs 2,420 - Rs 2,450 | SUPPORT: Rs 1,860
The stock has attained the base of the trendline channel pattern to form a strong support zone and the trend reversal has indicated a strong bias for more upside target levels. The RSI has also indicated a trend reversal for signaling a buy and we anticipate the rally to carry on further till Rs 2,420 - Rs 2,450 levels. We suggest to buy this stock for an upside target of Rs 2,420 - Rs 2,450 keeping a stop loss of Rs 1,860.
Finolex Industries | Target Price: Rs 770 | Upside Potential: 25.6 %
We forecast Net Sales/EBITDA/PAT to grow at a CAGR of 10.9%/9.6%/16% over FY19-21E.
HDFC Life Insurance Co | Target Price: Rs 718 | Upside Potential: 18%
At current price, the stock is trading at a P/EV multiple of 4.6x/3.8x on FY20/FY21E.
ICICI Bank | Target Price: Rs 523 | Upside Potential: 15%
At current market price, ICICI Bank is trading at a P/B multiple of 2.4x/2.1x on FY20/FY21E.
Indian Hotels company | Target Price: Rs 215 | Upside Potential: 43%
IHCL has a 5 year and 3 year average EV/EBITDA of 20x and 19.2x respectively. We have done SOTP valuation of the stock and value ICHL operations at its 5 year average EV/EBITDA multiple and stake in Taj GVK and Oriental Hotel at current market capital (as per IHCL stake).
ITC Ltd | Target Price: Rs 310 | Upside Potential: 23%
The stock is trading at 19x PE at FY21E Bloomberg estimates.
Reliance Nippon Life Asset Manangement | Target Price: Rs 382 | Upside Potential: 12%
At the current price, RNAM is trading at a P/E multiple of 25.9x/23.6x on FY20/FY21E.
Tata Elxsi | Target Price: Rs 1,050 | Upside Potential: 46.5%
Tata Elxsi has seen management change with Mr Madhukar Dev, MD & CEO having retired and succeeded by Mr Manoj Raghavan. At current market price, Tata Elxsi is trading at a PER of 16x/13.8x on FY20/FY21E which provides good risk reward. Thus, we believe that the stock has strong re-rating potential as the growth improves in H2FY20/FY21. It also has a cash surplus of nearly Rs 5 billion.