GEPL Capital picks 7 stocks to light up your Diwali

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GEPL Capital picks 7 stocks to light up your Diwali

GEPL Capital has come out with its report on Diwali picks.

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GEPL Capital has come out with its report on Diwali picks.

Diwali Picks 2011: It been a tough year for the Indian markets with a 19.5% correction in Samvat 2067, and volumes declining by 40% as the FII outflow for the period stood at Rs (-30) bn. All of this has lead to our markets trading at trough levels of 13x 1 yr fwd earnings, a discount of 10% to its past 15 year average.

A series of changes across the globe and in India have led to a fear for investment in equities and led to a scenario of uncertainty, volatility and currency depreciation. The higher commodity prices driven by QE2, the Middle East crisis and the pressure on financials with the debt concerns surrounding European banks have trickled down to our economy leading to a slower growth rate and higher inflation. What seems like an over ambitious deficit target, slow execution in India and political instability due to the recent exposure of scams, we have become more vulnerable to negative news flows.

However, with the current fear in the market, there lies a ray of hope, with plenty of stocks with good business ethics, practices and performances being able for a comparatively cheaper valuation. We have carefully picked up a few stocks, which we feel confident about & expected them to give good returns over a longer term. These stocks are our fundamental picks based on structural opportunities or business cycle reversals. The idea has been to pick stocks with low risk and above average return potential. With that we would like to wish you, A very "Pleasant & Safe Deepavali" and a "Prosperous Samvat 2068"!

Sintex Industries : Sintex has traded in range of 12x to 14x 1 yr fwd earnings in the past and is currently trading at 5x FY13E expected earnings of Rs 23.5. The stock has corrected by more then 200% in last 1 yr due to deteriorating working capital, for-ex exposure, concerns on Monolithic business & FCCB redemption issues. We believe that concerns are over done & stock price would bounce back sharply as Sintex would continue its performance going ahead. Our SOTP based target price of Rs 165 values the company at 7x 1yr fwd EPS & is at 40-45% discount to its historical long period average.

Jyothy Laboratories : The stock has witnessed more than 50% correction in last one year as against 18% correction on the Sensex as a result of concerns owing to competition in operating segments and acquisition of Henkel India. In the near term we remain cautious on the financial performance led by higher interest outflow and macro factors. However, we believe, earlier than expected growth momentum will be positive surprise for the stock. We believe acquisition of Henkel India will be value accretive over the longer term. We are positive on the JLL's long term growth potential. We value JLL on PE basis at Rs 181 with target multiple of 20x on FY13 EPS of Rs 9.1

Cox & Kings (India): C&K is currently trading at 14.3x FY12E EPS and 8.9x FY13E EPS, a significant discount to its historical one-year forward P/E band. In view of a) the acquisition of HolidayBreak which should double revenues, b) the strong demand visibility, and c) the improvement in return on capital in view of successful track record of past acquisitions, we believe there is good potential upside in the stock. We recommend a Buy rating on the stock with a target price of Rs 259 per share (11x FY13E EPS).

Bank of Baroda : The bank has traded in range of 1.7x to 1.8x ABV in the past and currently is trading at 1.4x ABV. The stock has corrected by 16% in last 3 months which has lead to lower valuation multiple due to growth and asset quality concerns that has crippled the banking industry. We feel the bank would continue its performance going ahead. The stock is trading at 1.2x and 1.0x BV of FY12E and FY13E. We feel such low multiple is not warranted for the stock with such strong fundamentals and it would trade at higher multiple once interest rate cycle peaks out. We expect the stock to trade at 1.2x BV of FY13E implying target price of Rs 901 in long term.

Coal India : The stock has corrected more than 14.5% in last one month against a correction of 1.6% in sensex. While concerns over New Mining Bill for setting aside 26% of profit sharing to the regional development around the mines, would impact the earnings of CIL in FY13E. Company's volume has grown at a CAGR of 5.6% over past 4 years. We believe the new mining bill once implemented would help the company in getting approvals; mainly forest clearances. We are positive on the CIL's long term growth story, we have valued CIL on EV/EBIDTA basis at a target price of Rs.395 per share with a target multiple of 8.5x on FY13E EBIDTA of Rs. 293bn.

Eicher Motors : We value Eicher Motors based on SOTP as company derives earnings from 2 wheeler (Royal Enfield) business, CV business through VECV JV and returns on the surplus cash it holds. We value the two wheeler business at a P/E multiple of 14.5x its CY12E earnings, the CV business at a P/E multiple of 11x its CY12E earnings and add cash per share of Rs 445 to arrive at a target price of Rs 1896, which is a potential upside of 15%.

Lupin : Lupin is expected to continue with its revenue growth rate over the next couple of years due to expected OC launches, limited competition products and large ANDA pipeline. Geographical diversification guarantees consistent revenue stream and regional risk mitigation. At the CMP of Rs 465, Lupin is trading at 17x its consensus FY13E earnings. Given Lupin's continued focus on innovation, entry into newer, under-penetrated markets and relatively low underlying business risk, we have valued the stock at 19x its consensus FY13E earnings which is comparable to its peers. Hence, we recommend a BUY rating on the stock with a target price of Rs 531.

Institutional holding more than 40% in Indian cos

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