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Last Updated : Feb 12, 2019 01:02 PM IST | Source: Moneycontrol.com

10 stocks where analysts initiated coverage in Feb with a 'buy' for double-digit returns

Despite the expected volatility, here are top 10 stocks where analysts initiated coverage with a buy rating in February

Sunil Shankar Matkar
 
 
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The Nifty and Sensex after a long consolidation period managed to reclaim 11,000 and 37,000, respectively, last week amid earnings, backed by Interim Budget 2019 and repo rate cut by the Reserve Bank of India.

But the upside has been capped by global cues, including issues related to US-China trade war.

The Nifty, so far, gained nearly 4 percent in 2019 against 3 percent in previous year but broader market continued to underperform frontliners due to corporate governance issues.

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Going forward, at least for next couple of months, the market is likely to keep a close watch on Lok Sabha polls and on FY19 earnings, experts said adding, the volatility is likely to be seen but the index may make attempt to rally 300-400 points on the Nifty ahead of the election.

"Indian markets have underperformed emerging markets YTD in 2019 and relative valuations have come off from elevated levels (50 percent premium to MSCI EM versus 70 percent at peak in late 2018)," Citi said.

"However absolute valuations are still 1 standard deviation above mean (17x) and given multiple uncertainties—global growth, upcoming general election and consumption growth concerns—we see downside risks to earnings for FY20E that are still elevated at 21 percent YoY, in our

view," the global brokerage house added.

Vinod Nair, Head of Research, Geojit Financial Services told Moneycontrol that a fall in interest rates and an improving outlook for consumption-oriented sectors after the Interim Budget will provide support to the market.

On the December quarter earnings front, Citi said along the expected lines, weak margins have impacted earnings for the 52 of the BSE-100 companies that have reported so far. "Yet, earnings have been better than feared for these companies."

Despite the expected volatility, here are top 10 stocks where analysts initiated coverage with a buy rating in February:

Brokerage: Emkay

L&T: Buy | Target: Rs 1,606 | Return: 27 percent

A well-restructured balance sheet and strong management place Larsen & Toubro (L&T) in a sweet spot to benefit from continued spending in public infrastructure opportunities. We estimate L&T to deliver about 14.5/17 percent revenue/PAT CAGR over FY18-21 versus 8.9 percent each over FY14-

18.

We believe this should drive a re-rating of the stock. In our view, most investors in L&T take three key parameters into consideration: Balance sheet strength, execution/margin momentum, and order book momentum.

We are initiating coverage with a Buy rating at a target price of Rs 1,606.

Brokerage: Ambit Capital

Safari Industries: Buy | Target: Rs 1,036 | Return: 32 percent

Safari is India's third-largest and fastest growing luggage/backpacks brand. Cost innovation and distribution architecture drove around 63 percent EBITDA CAGR (FY13-18) while balance sheet efficiencies (working capital improvement) led to around 9 percentage points RoCE improvement to around 19 percent.

Despite near-term headwinds on currency amid rising costs in China, around 30 percent EPS CAGR over FY18-23 would be led by around 27 percent revenue CAGR given success in economy SKUs/backpacks. Near-term valuations are punchy but could recede over next couple of years as RoCE stagnates given brandex and distribution ramp-up.

Our 2-year target price of Rs 1,036 is built on high-teen revenue growth over the next decade as Safari transitions from commodity to value-yet-aspirational brand for masses.

Brokerage: Antique Stock Broking

Adani Ports: Buy | Target: Rs 420 | Return: 27 percent

We are positive on the long-term prospects of the company, given its strong positioning in the shipping lines, world-class infrastructure, and its focus on providing integrated service offering (including efforts towards enhancing non-port revenue) and sweating of assets.

The consistent improvement in volume and cargo mix and greater utilisation should improve the company's margin and return profile, going ahead which, in turn, would support earnings and valuation for the stock.

We believe its balance sheet has been improving for real, given improvement in free cash flow (FCF) generation and management's commitment to limit related-party transactions. We initiate coverage on APSEZ with a buy rating, valuing the stock on SOTP basis at Rs 420.

Brokerage: Nomura

Bandhan Bank: Buy | Target: Rs 570 | Return: 22 percent

Bandhan Bank is one of the latest entities to gain a universal bank licence. It has strong moats in its high-yielding MFI (micro-finance institution) asset book, significantly lower opex versus peers, and notable delivery on liabilities within just around 3.5 years of becoming a bank. This translates into the bank delivering PPOP-to-assets and RORWAs (return on risk-weighted assets) that are 2x HDFC Bank's levels.

Its concentrated asset mix could have been a challenge for longer-term growth and asset quality, but its proposed merger with Gruh Finance addresses this concern. We expect Bandhan Bank to deliver around 30 percent earnings growth over FY19-22F, leading to 23-24 percent ROEs, which is best in class. We initiate with a buy rating and target of Rs 570.

Brokerage: Motilal Oswal

ICICI Prudential Life Insurance: Buy | Target: Rs 480 | Return: 54 percent

ICICI Prudential Life Insurance is amongst the market leader in the private sector life insurance space, aided by its strong brand, distribution capabilities and product portfolio. It has increased its market share in retail weighted premium to around 12 percent in FY18 (around 6 percent in FY12) and has alongside reported sharp improvement in persistency ratios.

This coupled with a change in product mix in favour of protection business and strong cost control has enabled healthy margin expansion (16.5 percent VNB margin in FY18 versus 10.1 percent in FY17). We expect margins to improve further to 18.2 percent by FY20E, boosting average operating RoEV to around 20 percent over FY18-20E. We value the company at Rs 480 per share using P/EV multiple of 2.7x (implied new business multiple of 21x).

We initiate coverage with a buy rating.

Brokerage: Arihant Capital Markets

Mindtree: Buy | Target: Rs 1,141 | Return: 28 percent

We expect Mindtree to report 18.4 percent CAGR in its revenues over FY18-21E, while PAT will witness a CAGR of 21.1 percent over the same period. EBITDA margin is expected to be steady around 16-16.5 percent level.

We are positive on Mindtree's future growth prospects, and initiate coverage on the stock with a buy rating and a target price of Rs 1,141 (18.5x FY21E earnings).

NIIT Technologies: Buy | Target: Rs 1,570 | Return: 20 percent

We expect NIIT Tech to report 20.3 percent CAGR in its revenues over FY18-21E, while PAT will witness a CAGR of 27.8 percent over the same period. EBITDA margin is expected to be steady around 17-18 percent.

We are positive on company's future growth prospects, and initiate coverage on the stock with a buy rating and a target price of Rs 1,570 (16.5x FY21E earnings).

Brokerage: Geojit

Avanti Feeds: Buy | Target: Rs 427 | Return: 30 percent

Avanti Feeds (AFL), is a leading manufacturer of shrimp feeds with a capacity of 6,00,000 MT, and shrimp processor & exporter with a capacity of 22,000 MT. AFL has a tie-up with Thai Union Group, Thailand (around 25 percent stake).

AFL has recently completed its major capacity expansions in both feeds (1,75,000MT) and processing (15,000MT) segments which will add growth.

AFL is the market leader in feeds segment and is now aiming to become one of the largest players in processing also post recent capacity addition.

The strong association with Thai Union group in terms of technical expertise and marketing tie-up is benefiting AFL to gain market share.

It has a strong track record of growing above industry growth in the last five years. Volumes grew at 33 percent CAGR (industry-20 percent), revenue/PAT grew at 33/61 percent CAGR.

FY18 witnessed an unusual margin gain of 750bps that is unlikely to sustain due to correction in shrimp and raw material prices and demand slow-down.

We expect PAT to fall in FY19E but to normalise post FY19E. We initiate AFL with a buy rating by valuing at 15x on FY20E and arrive at a target of Rs 427.

Apex Frozen Foods: Buy | Target: Rs 434 | Return: 46 percent

Apex Frozen Foods is an integrated producer and exporter of processed shrimps in Andhra Pradesh. The company has processing capacity of 15,240MT including a leased capacity of 6,000MT.

Apex has almost doubled its processing capacity during FY14-18 to 15,240MT and is now adding 20,000MT, expecting to complete by Q3FY19.

Recent backward integrations in farming (600acres) and hatchery (100 crore to 140 crore seeds) will ensure supply and cost saving.

Out of the total new capacity, 5,000MT is for value added-products, which will improve realisation and margin.

Apex has a strong track record of growing above industry. Apex revenue has grown at a robust 31 percent CAGR while the industry grew at around 12 percent.

Shrimp realisation witnessed a declining trend since Q3FY18 due to extended winter in the US coupled with strong supply which has now stabilised in Q2FY19.

Due to unusual high growth witnessed in FY18, PAT is expected to fall in FY19E, but excluding FY18, earnings growth is strong at 44 percent CAGR.

We initiate Apex by valuing at 14x on FY20E EPS and arrive at a target of Rs 434. We recommend a buy.

Brokerage: Indsec Securities and Finance

Capacit'e Infraprojects: Buy | Target: Rs 276 | Return: 36 percent

Capacit'e Infraprojects (CIL) is a rapidly growing construction company, predominantly operating in three zones—the Mumbai Metropolitan Region (MMR) (West), the National Capital Region (NCR) (North) and Bengaluru & Hyderabad (South).

We expect the topline to grow at CAGR of 18.5 percent over FY18-FY21E to Rs 2,220 crore, while EBITDA is expected to grow at CAGR of 19.7 percent

over the same period to Rs 350 crore with margins expected to be in the region of 15.7 percent by FY21E.

In terms of relative valuation, the construction industry is trading at one year forward average PE multiple of around 15x, and considering CIL's robust order book, their marquee clientele, their geo-graphical presence and an improving financial matrix, we believe that it could trade at similar valuations as the industry.

Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his 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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First Published on Feb 12, 2019 01:00 pm
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