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Aim for the winners: Top 10 brokerage picks after Q2 results

Amid global and domestic headwinds, the market is likely to remain volatile and investors should use the current fall to build a portfolio for the next 2-3 years, suggest experts.

October 26, 2018 / 06:49 PM IST

The S&P BSE Sensex has plunged over 7 percent or more than 2,000 points so far in October wiping out most of the gains made in 2018. The Sensex closed at 34,056 on December 29 and on October 24, the index recorded a level of 34,033.

Volatility is likely to continue for Indian market ahead of state elections as well as earnings from India Inc. which have been a mixed bag.

Amid global and domestic headwinds, the market is likely to remain volatile and investors should use the current fall to build a portfolio for the next 2-3 years, suggest experts.

“The macroeconomic environment currently looks cautious due to various geopolitical situations building around the globe. On the domestic front, post the IL&FS crisis financial stocks have taken a beating as investor’s sentiments remain cautious on this sector,” Hemang Jani, Head - Advisory, Sharekhan by BNP Paribas told Moneycontrol.

“We reiterate a cautious view on the NBFC sector. Investors will closely watch the ongoing Q2FY19 results, with oil showing no signs of cooling off and the rupee continues to weaken against the dollar will keep the markets volatile in the short term,” he said.


Jani further added that amidst this turmoil we feel this is the best time for long-term investors to build a portfolio for the next 2 to 3 years. We prefer private banks with a healthy CASA ratio HDFC Bank remains our preferred pick in this sector.

We have collated a list of ten stocks from different brokerage firms post Q2 results from India Inc. The returns are based on the closing price of the stock as on October 24, 2018:

Kotak Mahindra Bank: Buy| LTP: Rs 1177| Target: Rs 1420| Return 20%

CLSA upgrades Kotak Mahindra Bank to buy from outperform post Q2 results but slashed its 12-month target price slightly to Rs 1420 from Rs 1480.

The private sector lender reported a healthy growth in core profits, but investment provisions dragged profits, but valuation remains fairly reasonable which makes it attractive. The bank has a strong CASA and capitalisation to aid share gains. The global investment bank expects a pick-up in earnings growth which is a positive sign.

Cadila Healthcare: Buy| LTP: Rs 358.40| Target: Rs 450| Return 25%

Citigroup maintained its buy rating on Cadila Healthcare post Q2 results with a target price of Rs 450. The Heinz India acquisition is expected to be EPS accretive from the first year, said the note.

Heinz India acquisition is interesting given the strong brand equity. However, there needs to be meaningful synergies to make it RoCE neutral.

Earlier this week, Zydus Wellness, a part of the Ahmedabad-based Zydus Group on October 25 announced that it is acquiring Heinz India. The company said it had entered into a definitive agreement to acquire privately held Heinz India, jointly with parent Cadila Healthcare, at a valuation of Rs 4,595 crore.

Apollo Tyres: Buy| LTP: Rs 204| Target: Rs 270| Return 32%

Equirus Securities marinated their buy rating on Apollo Tyres (APTY) post Q2 results with a target price of Rs 204. Apollo Tyres has corrected sharply over the last three months as tyre companies delayed price hikes required to pass on RM cost inflation (stemming from crude, currency pressures).

However, price hikes have now started coming through and we expect another round of hike in the coming months. As per our recent interaction with APTY, European sales traction and margin improvement would be slower than anticipated as a ramp-up in OEMs and market share gains in the aftermarket would take time.

The brokerage firm retains ‘LONG’ with a target of Rs 270 at 16x Dec’19 EPS, deriving comfort from its strong R&D capabilities and expectations of market share gains over the coming years.

Wipro: Buy| LTP: Rs 309| Target: Rs 405| Return 31%

Elara Capital maintained its buy rating on Wipro and reiterate that it is a top pick in the sector with a target price of Rs 405. Wipro reported revenue growth of 1.6 percent on a QoQ basis in constant currency (CC) terms, ahead of our expectations of 0.7 percent helped by 1 million of integration of the USD1.5bn 10-year deal with Alight.

Adjusting for the divestiture of the data center business, QoQ growth in CC terms was 2.8 percent, the best since 2QFY16. While we had expected improved execution over 2HFY19, we are positively surprised at the broad-based nature of growth and even earlier than anticipated.

BFSI posted its 10 consecutive quarter of growth at 3.4 percent QoQ and 16 percent on a YoY basis in CC terms (vs QoQ growth of 5.8 for Infosys and 3.5% for TCS) making for an impressive CQGR of 2.7% in USD terms from 4QY16.

Oberoi Realty: Buy| LTP: Rs 432| Target: Rs 550| Return 27%

Elara Capital maintained its buy rating on Oberoi Realty post Q2 results with a target price of Rs 550. Oberoi Realty revenue grew by 95 percent on a YoY basis but was down 33 percent QoQ to Rs 600 crore, below our estimates on lower revenue recognition from the Esquire project, Goregaon (INR 1.1bn in Q2 vs INR 4.0bn in Q1FY19).

Oberoi scores high on operational transparency and disclosures which are key differentiators in the sector. Regulatory headwinds like RERA and liquidity issues at the NBFC level augur well for Oberoi with a strong brand, quality assets, and timely execution track record.

“We believe the company has multiple triggers over the next 12 months, such as the launch of Thane and subsequent phases at Borivali & Goregaon projects,” said the report.

Hero MotoCorp: Buy| LTP: Rs 2,702| Target: Rs 3,751| Return 38%

Elara Capital maintained its buy rating on Hero MotoCorp post Q2 results with a target price of Rs 3751. “We are impressed by Hero’s market share resiliency in the economy as well as executive motorcycle segment and believe it to maintain its share in medium term despite an increase in competitive intensity; as we believe that pricing game alone is not enough to gain share and customers shift back to brands with better re-sale value,” said the note.

Elara Capital reduced its FY19-20E EPS estimates by 4-5 percent to factor in margin cut as well as the higher tax rate. The management acknowledged that demand for the first six days of festive has been soft, however, they are confident of demand reviving in the balance festive period.

Asian Paints: Buy| LTP: Rs 1189| Target: Rs 1650| Return 38%

BofAML maintained its buy rating on Asian Paints post Q2 results with a target price of Rs 1650. The company reported healthy volume, but bottom-line missed on weak margins, as well as lower margin due to delay in price hikes led to a miss. However, recent dealer checks suggest surging optimism for H2.

Inox Leisure: Buy| LTP: Rs 207| Target: Rs 275| Return 32%

CLSA maintained its buy rating on Inox Leisure post Q2 results with a target price of Rs 275. Poor content, partial non-presence on BookMyShow impacted footfalls.

However, steady advertising revenue growth and strong screen additions support the positive outlook. The management reiterated that Inox is open to any inorganic expansion.

Ultratech Cement: Buy| LTP: Rs 3387| Target: Rs 5150| Return 52%

Nomura maintained its buy rating on UltraTech Cement post Q2 results with a target price of Rs 5150. The Q2FY19 was a miss driven by lower volume and higher costs.

But, the management believes that prices are likely to move-up in Q3 and power/fuel costs have peaked. UltraTech best geared for cement cycle upturn that has already begun.

Morgan Stanley has the overweight call on UltraTech with a target price of Rs 4,954 per share, citing above expectation volume growth and in-line realisation which helped the company deliver in-line EBITDA.

ACC: Buy| LTP: Rs 1380| Target: Rs 1900| Return 39%

CLSA maintained its buy rating on ACC post Q2 results with a target price of Rs 1900. Cement major ACC reported a rise of 15 percent (Year-on-year) in its net profit for the September quarter at Rs 209.1 crore.

Deutsche Bank also marinated its buy rating with a target of Rs 1730. The September quarter net profit missed estimates on weaker realisations. But, the company continues to deliver on cost control. Going forward, better realisation and cost control to drive robust earnings growth, said the note.

Disclaimer: The above report is compiled from information available on public platforms. advises users to check with certified experts before taking any investment decisions.
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