Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote, feels investors should now start adding top quality stocks to their portfolio at lower levels
The Nifty closed moderately lower-to-flat for the third consecutive month in February after a spectacular run in November 2018. This indicates that the market, after pricing in many events, is eagerly awaiting the Lok Sabha Elections.
In fact, the market has been rangebound, amid mixed December quarter earnings, slower economic growth, easing geopolitical tensions, mixed automobile sales data, fears of a global slowdown and change in the Goods & Service Tax (GST) rates on several segments.
The market has been supported by inflows from domestic institutional investors (DIIs), renewed buying by foreign institutional investors (FIIs) in February, lower crude oil prices and hope of trade deal between US and China.
Slowly the market's focus will shift to the general elections to be held in April-May, followed by January-Mary earnings, experts said. They see the possibility of a pre-election rally, which could take the Nifty beyond 11,200 levels amid volatility.
"In the short-run, the geopolitical situation, elections or US-China trade war may make the market volatile. But in the long-run, the market will perform irrespective of these factors. Long-term investors should ignore such factors and focus on business with strong and consistent earnings growth and prudent and experienced management," Siddharth Sedani, Vice President - Equity Advisory at Anand Rathi Shares and Stock Brokers told Moneycontrol.
He believes the fundamentals of Indian markets are on a firm footing, with expected earning revival in an environment of benign inflation and robust GDP growth.
After the near-term volatility, Shibani Kurian, Senior Vice-President and Head of Equity Research, Kotak Mahindra AMC, also believes that the market's focus would then shift to fundamentals and valuations. "The pace of improvement in domestic earnings growth would assume importance for the remainder of the year."
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She expects earnings growth improvement to be visible in FY20 (in the range of around 16-18 percent).
Hence, Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote, feels investors should now start adding top quality stocks to their portfolio at lower levels.
Here are top 10 stocks where brokerages have initiated coverage for the first time in the second half of February and which can deliver 11-62 percent return in the next one-year:
Brokerage: Antique Stock Broking
Welspun Enterprises: Buy | Target: Rs 172 | Return: 62%
Welspun Enterprises (WEL) is an asset recycling infrastructure model, offering investors a margin of safety and growth opportunity at an attractive valuation.
Unlike other companies in the road sector, where burgeoning order backlog and new project bids could possibly stretch balance sheets, WEL is a company that has developed assets, even beyond roads, sold them, and bid for new projects. And it has all happened with an adequate cushion of cash in hand. Not many have walked the strategic sale talk.
Even better, WEL has a Rs 5,750 crore order backlog in hand. Further, between FY18 and FY21, the company can deliver a revenue/EBITDA/net profit growth of 59/90/48 percent CAGR respectively. We initiate coverage with a buy.
Brokerage: Antique Stock Broking
Oberoi Realty: Buy | Target: Rs 630 | Return: 29%
We initiate coverage with a buy rating on Oberoi Realty as it is a dominant Player in Mumbai, with healthy rental income and strong balance sheet.
With expected revenue of Rs 2,400 crore in FY19E, Oberoi Realty is a dominant real estate developer in Mumbai, the most lucrative real estate market in India. With a robust execution track, record ORL is one of the strongest brands in Mumbai Metropolitan Region (MMR) and second largest developers in terms of sales value (INR mn) in the last 5 years.
Although ORL is executing two mixed-use developments at Borivali and Worli, both of which are high capex intensive, the company has the strong balance sheet and has one of the lowest D/E ratio (around 0.20) in the industry.
With NAV of Rs 525 per share (Thane, Sky City extension and social infrastructure not included) and potential volume growth due to new project acquisitions, the target price of Rs 630/ share is a significant upside.
Brokerage: Yes Securities
Birla Corporation: Buy | Target: Rs 655 | Return: 29%
The company is currently trading at EV/EBITDA of 7.3x/6.7x on FY20E/FY21E which is at a steep discount of around 30 percent to average valuation of its mid-cap peers (Ramco Cements, JK Cement and JK Lakshmi).
We believe Birla Corporation should fetch premium valuations and valuation gap with peers to narrow down on account of a) strong brand presence in fast-growing markets, b) improvement in operating efficiencies and c) stable balance sheet going ahead.
We have valued the company at EV/EBITDA of 9x on FY20E arriving at a target price of Rs 655 per share. We initiate coverage on the stock with a buy rating.
Brokerage: Equirus
Ahluwalia Contracts: Long | Target: Rs 376 | Return: 26%
Ahluwalia Contracts (AHLU) is a Delhi-based integrated EPC company in the building construction space, and among a handful of players with proven execution capabilities and a lean balance sheet.
Govt's infra development push is opening new market and opportunities for AHLU, which should continue to boost its order book. A 3x book-to-sales ratio offers strong revenue visibility and we expect the company to achieve 17 /21 percent revenue/PAT CAGR over FY18-FY21E.
With a strong order book, proven execution, a lean balance sheet and upcoming opportunities in key markets, we are long-term positive on AHLU. Initiate coverage with LONG and a SOTP-based target price of Rs 376.
Brokerage: Equirus
Subrosa: Long | Target: Rs 312 | Return: 25%
Subrosa is a market leader in automotive AC parts with a 42 percent market share. Maruti Suzuki is the largest customer (contributed 69 percent of FY18 Sales), it is also the largest supplier to OEMs like Tata Motors and M&M.
Moreover, a strong parentage (Denso Corp. 20 percent stake recently increased from 13 percent earlier at Rs 400/share) provides SUBR access to Denso's technological prowess, an enviable pipeline (new products to flow through) and thus a strong competitive edge.
We expect 10 /15 /31 percent sales/EBITDA/PAT CAGR over FY19-FY21, and initiate coverage on Subros with long and a Mar’20 target price of Rs 312 at 17x Mar’20 EPS. We believe that FY20 free cash flow yield of 8 percent provides strong valuation support.
Brokerage: Axis Securities
Symphony: Buy | Target: Rs 1,680 | Return: 31%
Symphony is well positioned in the air-coolers industry owing to its well-established brand with high recall, asset-light business model, substantial market share and growth in demand for the product on the back of improving affordability.
Having gone almost bankrupt, Symphony emerged like a phoenix in the air-coolers market to become a global leader with ‘one product, many markets’ theme and acquiring companies in Mexico, China, and Australia to expand its footprint overseas and into the industrial and commercial air-cooling market.
Symphony would be a big beneficiary of rising temperature across the globe due to global warming and changing weather patterns.
When computed over FY19E-FY21E, we estimate the company to post robust growth of 18 percent CAGR in revenues and 29 percent CAGR in earnings.
Brokerage: Anand Rathi Research
Maruti Suzuki: Buy | Target: Rs 8,482 | Return: 22%
With solid fundamentals and favorable macro traits, we believe the company is well positioned for long term growth and initiate our coverage on Maruti Suzuki India Limited with a buy rating and a target price of Rs 8,482 per share.
While the last quarter has been disappointing, we remain optimistic about the upcoming quarters owing to a number of factors including recovery in
domestic demand, MSIL’s localization efforts, capacity expansion from Gujarat plant and easing pressure on company’s expense base.
Brokerage: Reliance Securities
GAIL India: Buy | Target: Rs 382 | Return: 11%
We initiate coverage on GAIL (India) Ltd. with a buy recommendation and a SOTP-based target price of Rs 382.
We expect GAIL to witness 9 percent earning CAGR through FY19-21E backed by a swing in gas volume from Hazira-Vijaypur-Jagdishpur (HVJ) (low tariff) to Dahej-Vijaipur pipeline (DVPL) (higher tariff), as the company will continue to swing in gas volume from HVJ to DVPL.
As guided by the company, GAIL will be able to bring up the utilization level of its Petrochemical plant from 74 percent in FY19 to 90 percent in FY20 and 98 percent in FY21.
GAIL Petchem segment to benefit from sustained higher margins, we expect Petrochemical EBITDA to grow by 30 /27 /30 percent in FY19/FY20/FY21. In the higher crude prices scenario, the gas trading segment is expected to reap margins from US LNG.
Brokerage: Stewart & Mackertich Research
Tech Mahindra: Buy | Target: Rs 954 | Return: 15%
We initiate coverage on Tech Mahindra Ltd with a buy rating. Telecom vertical which has been declining/flat for several quarters came back strong in the last two quarters. Telecom which contributes 41 percent of revenue, grew 2.5 percent QoQ in USD in Q3FY19. We expect further thrust in communication vertical going forward.
Central to our investment rationale is our view that Tech Mahindra is nicely putting in place the building blocks to win big in 5G. The industry expects 5G spending by the carriers to pick up in CY19, with Tech Mahindra getting its fair share of the network services piece from FY21.
Further, Enterprise is likely to maintain good growth aided by higher digital revenue and strong total contract value. Also, recent buyback announcements augur well for return ratios of the company.
Brokerage: Sunidhi Securities
City Union Bank: Buy | Target: Rs 225 | Return: 20%
Considering its strategy to continue with its niche of granular loans (mainly higher yielding working capital lending) in Southern locations (a market it knows well), management continuity, good capital position, control on operating costs and asset quality, healthy margins and return ratios, we initiate coverage on City Union Bank with a buy rating and a target price of Rs 225.
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