11 stocks where brokerages have initiated coverage this week, expect 13-38% returns

"Nobody has missed any opportunity. It is a fact of experience that one may not be able to time the investments in such a way that the buying is effected at the lowest levels," said Joseph Thomas, Head Research - Emkay Wealth Management.

Here are 11 stocks that can be bought with a period of one-to-one-and-half-year. Brokerages have initiated coverage on these stocks, with a buy call in current week and expect them to give 13-38 percent returns.

Most of these stocks have already gained in double digit after the September 20 announcement.

Brokerage: Prabhudas Lilladher

Inox Leisure | Target: Rs 394 | Return: 21 percent

We initiate coverage on Inox Leisure with a buy rating given its number 2 position in film exhibition market (21 percent screen market share), renewed focus on premium format screens (9 percent of screen mix; aim to take it to around 10-12 percent) and aggressive screen addition plans (we expect 72/75 screens to be added in FY20/21 after doubling the strength of the project team and creation of a separate liaising team).

We expect sales/Ind-AS adjusted EBITDA to grow at a CAGR of 14.8 percent/18.6 percent over FY19-21E, driven by strong growth in non-ticketing revenue.

We assign EV/EBITDA of multiple of 8.5x (Ind-AS adjusted multiple of 9x) to our FY21E EBITDA of Rs 710 crore (Ind-AS adjusted estimate of Rs 430 crore) and arrive at a target of Rs 394. Initiate with a buy. Threat from OTT and contagion of local body tax are key risks.

Brokerage: Sharekhan

Colgate Palmolive | Return: 18-20 percent

Colgate is trading at 40.8x of its FY2021E earnings, which is at a discount to its historical multiples and discount to some of the large multinational companies.

The slew of actions undertaken in the recent past by the management will not only help in regaining the market share, but also the volume growth to around 5-7 percent in the near term.

We expect Colgate's earnings to clock a CAGR of 8 percent over FY2019-21. Improvement in the market share and volume growth trajectory will be a key re-rating trigger for the stock. Further, earnings accretion of around 11 percent each expected due to a reduction in effective tax rate can be ploughed back in the company to revive growth in the near term.

We initiate a positive view and expect a potential upside of 18-20 percent.

Brokerage: IDBI Capital

Trent | Target: Rs 586 | Return: 13 percent

We initiate coverage on Trent Limited (Trent) with a buy and a target price of Rs 586 based on SOTP valuation. Trent, post the success of Westside, is now betting heavily on two smaller-size value-focused retail format; Zudio (ASP of Rs 400) and Utsa (ASP of Rs 1,000). Store addition rate has been accelerated from 24 in FY18 to 58 stores in FY19 and now aiming to add 100 stores per annum going ahead.

Private label advantage (ability to offer same quality product at lower price), superior brand image and best in class after-sales service makes Trent a structural bet on value retailing in India, with a niche in women ethnic wear category that faces no foreign competition.

TCNS Clothing Company | Target: Rs 943 | Return: 27 percent

We initiate coverage on TCNS Clothing Company (TCNS) with a buy and a target price of Rs 943 based on EV/EBITDA of 20x FY21E.

TCNS has a proven track record of creating three successful brands in women ethnic wear: W, Aurelia and Wishful. Focus on product development (fitment and designing) and  pan-India presence enables TCNS to compete on a strong footing.

APL Apollo Tubes | Target: Rs 1,920 | Return: 38 percent

We initiate coverage on APL Apollo Tubes (APL) with a buy rating and a target price of Rs 1,920.

APL is India’s largest manufacturer of electric resistance welded (ERW) pipes. It is also one of the lowest cost producers of ERW pipes with a wide range of products and a large distribution network. In the past decade, APL has outperformed industry growth by gaining market share from small and unorganised players. These factors have resulted in a strong return ratios for APL (Average ROE of 19 percent over FY10-19).

With expanded capacity in place, we expect its volumes to grow at a CAGR of 20 percent over FY19-21E. Also, its EBITDA/net profit are expected to grow at CAGR of 24 percent/45 percent over FY19-21E, respectively.

Lastly, its return ratios are expected to show remarkable improvement over FY19-21E.

Brokerage: SPARK Capital

Laurus Labs | Target: Rs 431 | Return: 21 percent

Building on its cost-effective API capabilities, Laurus forayed into formulations with an investment of Rs 420 crore in FY17-18 at its facility at Vizag (capacity of 500 crore tab/cap per annum).

Its formulations strategy is built around ARV tenders in GA LMIC and its fully integrated model positions Laurus to gain a patient market share of around 10 percent in the next five years.

Recent WHO guidelines changing preferred first-line ARV treatment from efavirenz-based regimen to dolutegravir-based regimen should impact Laurus' key ARV APIs. We estimate ARV API revenues to decline (-2 percent CAGR during FY19-22E).

All fixed costs related to formulation business is in the current cost base and ramp up of sales should drive margin expansion and RoCE improvement as capex intensity tapers from FY20. Our target price is of Rs 431 is 16x FY21E EPS. Initiate coverage with buy.

Brokerage: JM Financial

Spandana Sphoorty Financial | Target: Rs 1,100 | Return: 21 percent

We initiate coverage on Spandana Sphoorty Financial (SSFL) with a buy rating and a target price of Rs 1,100.

SSFL has overcome significant challenges in the past—before being impacted by the AP crisis, it was the second largest MFI in terms of AUM, and also the most profitable (FY10).

SSFL was significantly impaired by the AP ordinance (Oct-10), and the company went into corporate debt restructuring (CDR) in FY12. SSFL sustained its operations post the crisis and the equity capital infusion by Kedaara Capital in FY17, restored the company’s financial health. SSFL is now the most profitable large NBFC-MFI, delivering an RoA of 7.1 percent in FY19.

We expect SSFL to deliver a strong 36 percent AUM CAGR over FY19-21E, which we largely attribute to the scaling up of branches/ticket sizes to full capacity.

SSFL’s business is no longer concentrated in a single state, with Madhya Pradesh and Odisha being the largest contributors (20 percent of AUM each). We expect SSFL to deliver robust RoA of 7.4 percent / 7.6 percent in FY20-21E, which translates to RoEs of 18 percent / 19 percent. We expect PBT to post a 28 percent CAGR over FY19-21E. We value SSFL at 2.2x FY21E BVPS to arrive at our target price, which still implies a 22 percent discount to its closest peer, CreditAccess Grameen.

Brokerage: Anand Rathi

Indian Hotels | Target: Rs 180 | Return: 16 percent

The Indian hotel sector is on the cusp of a turnaround. With the changing demand-supply dynamics driven by rising demand, occupancies are expected to improve significantly in the next three to five years, leading to appreciably better room rates.

We initiate coverage on Indian Hotels with a buy and a target of Rs 180 (at 20x FY21e EBITDA). Indian Hotels leads the hospitality sector in the country, with 18,217 rooms in 151 hotels in Q1 FY20 at over 80 locations in four continents.

With its strong brand equity, all-India footprint, leading position in the luxury category and improved performances of its subsidiaries, we believe the company will outshine others.

Brokerage: Axis Securities

NOCIL | Target: Rs 137 | Return: 20 percent

We estimate NOCIL to post revenues at a CAGR of 9 percent and profits at 13 percent over FY19-FY21E. It is well positioned in the global market with marquee customer base, robust margins, strong balance sheet, diversified product portfolio and technological edge.

We value NOCIL at 9x FY21E, given the growth prospects to arrive at a target price of Rs 137.

Brokerage: Arihant Capital

Phoenix Mills | Target: Rs 986 | Return: 37 percent

The Phoenix Mills (PML) is the largest player in the Indian retail mall segment. Other than retail, PML also has a presence in commercial, residential and hospitality space. As of June 2019 end, PML had 7.22 million square feet (msf) of operational assets, 5.86 msf of developmental assets and 3.85 msf of assets under planning.

With its strong annuity-led business model and an impressive portfolio of assets, we expect PML to report 10.1 percent CAGR in revenue over FY19-21E. PAT will witness 12 percent CAGR over the same period, with a stable margin of 50-51 percent.

We are bullish on PML due to its strong free cash flow generation and stable annuity income. Initiate coverage with buy rating and a target price of Rs 986.

Brokerage: ICICI Direct

KNR Constructions | Target: Rs 300 | Return: 29 percent

KNR Constructions (KNR) is a leading road focused EPC player with over two decades of experience and a reputation for completing projects on time or ahead of schedule. With a strong orderbook of Rs 6,519 crore, rapid execution of captive hybrid annuity model (HAM) projects and large ticket irrigation projects, it is well on track to achieve 19% CAGR in revenues to Rs 3,031.1 crore in FY19-21E.

We also like KNR's focus on monetising its under-construction HAM projects (Cube highway deal for four HAM projects at 1.8x P/BV). Considering strong execution and better EBITDA margins with best in class working capital cycle and healthy balance sheet, we initiate coverage on KNR with a buy rating on the stock and SoTP target price of Rs 300 per share.

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