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Mar 01, 2012, 04.07 PM IST
Prabhudas Lilladher has come out with its report on various largecap & midcap stocks. The broking firm recommends 14 stocks to be bought on every decline.
Prabhudas Lilladher has come out with its report on various largecap & midcap stocks.
Top largecap picks:
Coal India : Backed by 6% growth in volumes and 5% increase in blended realisations, CIL’s earnings are expected to grow at a CAGR of 15% during FY12-14, despite sharp increase in the wage cost. We value the stock at Rs390, P/E of 12.5x FY13E operational EPS of Rs23.1 and cash per share of Rs102. We believe that valuations are justified, given the sustainable RoE in excess of 30%.
ITC : FY13e volume growth would be a function of excise action in forthcoming budget. We are forecasting 15% excise hike and conservative 2% volume growth in FY13e. Gaining traction in Soaps (6% market share). Expecting a FY13e breakeven. Agri and Paper margins have improved substantially over last three years and are sustainable. Agri business to sustain double-digit EBIT margins on the back of improved portfoliomix. Improvement in dividend payout ratio will sustain the premiumvaluations. Solid earnings CAGR of 18% for FY10-14E. SOTP- based price target of Rs240. Top pick in large cap consumer space.
Adani Ports & SEZ : Based on DCF, the value of the port stands at Rs100/share. Further, we are assigning a 50% probability to a 20-year extension of the concession agreement which translates to Rs21/share. The value of the SEZ at a 30% discount to NAV stands at Rs13/share, Abbot point contributes ~Rs 18/share, while all its other assets are valued at Rs10. Our SOTP value stands at Rs161.
Bharti Airtel : We believe that the recent 2G verdict augurs well for Bharti as competitive intensity to moderate in the 2G space driven by 1) exits and 2) extended payback periods for those who re-bid. However, the industry still remains competitive with 5-6 players in each circle. We value Bharti at ~7x FY13E EV/EBITDA, at a premium to Idea at target EV/EBITDA of 6.5x, primarily owing to the insulation from the 2G scam and diversification to regulatory risk provided by the Africa ops. ‘Accumulate’.
Top midcap picks:
Rallis India : Rallis is trading at par/premium v/s global as well as domestic peer on account of better financials, focus on branded products, higher return ratio and synergy with Tata Chemicals (TCL). We strongly believe that Rallis will trade at a premium, going forward too. We expect that Rallis could positively surprise on the back of its land bank, strategic stake in Advinus, income from pulses initiatives (with TCL) any time in the future. We have not considered these factors either in our estimates or valuation. Our TP is based on 18xFY13 EPS or land adjusted valuation of 16xFY13 EPS. Adverse weather/monsoon could be downside risk to our estimate/TP.
Gujarat State Petronet : Excluding the CGD value from the current market price, the stock is available at P/E of 8.5xFY13 (an attractive proposition for a utility play). The same in turn reflects lack of growth prospects, which we believe builds an over pessimistic scenario, going ahead. We recommend an ‘Accumulate’ on the stock, with a target price of Rs102/share.
LIC Housing Finance : We have a BUY on the company with a target price of Rs 340, implying an upside of 37.5% and FY13 P/B 1.84x.
Jain Irrigation : Stock has been sharply de-rated from one-year forward P/E of 25x to 9x and EV/EBITDA of 15x to 6x. We believe that the present valuation is comfortable, considering JISL’s strong business model despite considering slower growth, going forward. We recommend ‘BUY’ the stock. Our TP is based on 8xFY13 EV/EBITDA and 13xFY13 EPS. Slower-than-expected growth in MIS or disappointment to improve balance sheet could lead to downward risk to our estimate as well as rating, going forward.
Polaris Financial Technology : Services and IP business look undervalued- Polaris product business is a late-cyclical business and the cycle seems to be turning for this business due to increased regulation from central banks. Combined with operating leverage, we expect Polaris to be able to grow its earnings by 20% organically in FY13 and FY14. The stock is trading at 5.8x FY13E earnings, steep discount to peers.
Jagran Prakashan : In a scenario where ad spends are weak and newsprint prices remain flat, we prefer Jagran in the print media space as it’s conservatism (less cash burn from new launches) and dominant position in UP provides resilience to earnings relative to HT Media or DB Corp. Jagran is valued at 13.7x FY13E P/E and is attractive as compared to its peers (DB Corp – 15x; HT Media – 16x) and provides a 24.5% upside to our target price of Rs 131. ‘BUY’
Petronet LNG : We continue to believe that the changing volume mix in favour of spot volumes on account of strong demand estimates is likely to keep PLNG in good stead. Moreover, we expect the strength in marketing margins to continue, going ahead due to subdued domestic gas production profile. Increase news flows on the new LNG terminal planned on the east coast and capacity expansion at Dahej is likely to guide Petronet LNG into high growth orbit, going ahead. While PLNG’s utility nature of business (stable re-gasification margins and term contracts), low regulatory risks (re-gasification margins are not currently under PNGRB’s purview), coupled with domestic gas shortages, will result in significant further upsides to the stock. We recommend ‘BUY’, with a DCF-based target price of Rs197/share.
MindTree : We expect steady performance from the company, both in terms of growth and margin expansion. We retain our ‘BUY’ rating, with a TP of Rs550, 10x FY13e earnings estimate.
Amara Raja Batteries : The current valuation seems attractive, given the strong balance sheet, with return ratios in excess of 20% and earnings CAGR of 16.7% for FY12- FY14E. We maintain our ‘Accumulate’ call on the stock.
Cummins India : Cummins is trading at 18.3x FY13 earnings. We believe, given the strong franchisees and product profile, the company will be the biggest beneficiary of an upturn in the capex cycle. We believe it can continue to surprise on the upside in terms of earnings. We maintain our ‘BUY’ rating on the stock.
Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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Tags: Coal India, ITC, Adani Port & SEZ, Bharti Airtel, Rallis India, Gujarat State Petronet, Jain Irrigation, Polaris Financial Technology, Jagran Prakashan, Petronet LNG, MindTree, Amara Raja Batteries, Cummins India, Prabhudas Lilladher
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