Last Updated : Nov 17, 2020 10:25 AM IST | Source: Moneycontrol.com

Be ready for Samvat 2077! Brokerages pick 15 largecaps for 14-48% upside by next Diwali

Prabhudas Lilladher believes that current uncertainty is a passing phase and return to normalcy will result in several beaten down segments bouncing back strongly from FY22.

Sunil Shankar Matkar
 
 
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A good start and record closing on the Muhurat trading day gave a sentiment boost to the investors and traders. Experts believe if economic recovery and earnings growth continue in the coming year, the benchmark indices could attain fresh highs.

The 68 percent rally in market seen since March 23 low was largely driven by IT, Pharma and Energy stocks.

According to experts, economy is expected to grow around 7-10 percent in FY22 on a low base of FY21 and earnings growth could be 25-35 percent in FY22.

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"Despite a year where governments have had to balance conflicting interests of physical well-being of citizens and economic stability, financial markets have largely worked efficiently in pricing risks and appear to point to an upcoming period of rapid progress. As the combination of fiscal and monetary stimulus kicks in along with a broad re-opening of the economy, we can expect earnings growth in the coming couple of years to be robust," S Hariharan, Head - Sales Trading at Emkay Global Financial Services told Moneycontrol.

Indian recovery has been led by sharp upsurge in rural demand as benefits of higher crop prices as normal monsoons benefit 60 percent of population, said Prabhudas Lilladher which remains positive and believes that the current uptick could be the start of next multi- year cycle.

The brokerage believes that current uncertainty is a passing phase and return to normalcy will result in several beaten down segments bouncing back strongly from FY22. "We continue to favour companies with strong balance sheet and sustainable business moats in the long term."

Here is a list of 15 largecaps which could return 14-48 percent by next Diwali 2021:

Brokerage: Motilal Oswal

State Bank of India

We believe the earnings normalisation cycle for SBI has begun and it remains the best play among the PSU banks, on gradual recovery in the Indian economy, with a healthy PCR of 71 percent, robust capitalization, a strong liability franchise, and improved core operating profitability.

Hero Motocorp

HMCL is poised for faster recovery over other 2-wheeler peers due to its rural-focused portfolio and market leadership in the entry and executive segments. Considering its improved competitive positioning post BS6, HMCL should continue to see good demand with its economy-executive focused portfolio.

UltraTech Cement

UltraTech has a strong pan-India distribution network and preferred supplier status for key infrastructure projects. This places it in a good position to tap into expected growth in both retail and institutional (nontrade) cement demand in India.

Dabur India

Dabur's investment case is strong, supported by: (a) dedicated focus on the Herbal segment, (b) power brand strategy, (c) a spate of new launches, (d) an increasing direct distribution reach and (e) cost savings which would be plowed back into the business.

Brokerage: Kotak Securities

Bajaj Auto

Domestic motorcycle retail demand has reached 90 percent of the last year levels and export motorcycle retail demand has reached 90-95 percent of the last year levels for the company, which is encouraging.

We expect company's sales volume to grow by 20.5 percent in FY22 and 14.6 percent in FY23. We expect gross profit per vehicle to improve to Rs 21,154 in FY23 from Rs 19,307 in FY20 led by richer mix in the domestic two wheeler segment and improvement in export mix.

Larsen & Toubro

We envisage a meaningful recovery in 2HFY21 based on (1) a strong order inflow pipeline and (2) favourable gross margin trends sustaining. Existing order backlog can drive a 25 percent YoY growth in execution in absence of supply chain issues. While domestic market contributes majority of order inflow and backlog, L&T is achieving diversification in regions beyond Middle East.

ITC

We believe concerns around cigarette taxation in view of stretched government finances and rising focus on ESG-compliant investment are more-than-adequately priced in.

The stock offers a good combination of (1) inexpensive valuations (13X Sep 22E PE), (2) healthy dividend yield (6%) and (3) promise of solid LT growth in FMCG. We do not see any structural negative emerge for ITC from the ongoing pandemic.

SBI Life Insurance

We expect SBI Life's VNB margins to expand 0.3 percent YoY to 19 percent in FY21 and further increase to 21 percent by FY23 led by (1) increasing share of protection mix, (2) pick-up in growth of high-margin non-par savings post slowing down in Q2 & (3) margin expansion in protection and non-par businesses.

We expect improving business momentum in 2nd half. Strong persistency trends will cushion operating variance. We see revival in APE growth from 2HFY21E.

Infosys

Infosys impressed with excellent results and a significant beat on revenues, EBIT (Earnings before interest and tax) and net profit in Q2FY21.

Infosys to lead the industry on growth with success in strategic priorities viz: scaling digital, large deal success, sales and marketing augmentation driving better account mining and stability in management ranks.

Bharti Airtel

We believe Bharti remains a solid medium-term bet on (1) improvement in sector fundamentals (regardless of whether the end game is a 2-player structure or a 3-player one) and (2) sustained solid execution. Management said that the current tariffs are still at low levels. They have guided for Average Revenue Per User (ARPU) to move to Rs 200 in the short term and Rs 300 in the medium term.

We expect Bharti to report free cash flow of Rs 17,227 crore during FY21-23 period. Bharti has sufficient cash on books with no liquidity issues. Bharti can look at asset opportunities but the decision for the same will not be based on pressure to reduce net

debt.

Brokerage: Anand Rathi

Tata Consultancy Services

Going forward, global digital technologies are expected to witness robust growth (around 20 percent CAGR in next five years) led by robust growth in cloud, customer experience and robust growth in cloud native technologies. TCS is expected to be a key beneficiary of this trend leading to double-digit revenue growth over a sustainable period.

Brokerage: HDFC Securities

Cadila Healthcare

Domestic and wellness businesses should grow in high single digits and low-mid teens, respectively. The stabilization in the price erosion in the US generics business coupled with a strong pipeline would drive growth in the US business. It has reduced net debt by Rs 2,700 crore to Rs 4,030 crore through fund raising of Rs 1,000 crore (at the Zydus Wellness level) and a better working capital cycle in H1FY21. We estimate revenue CAGR of 8 percent over FY20-22 led by strong growth from wellness business, US market and domestic formulations. We project 150bps margin expansion led by gross margin expansion and operational efficiencies over FY20-22. Healthy revenues, better operating performance and lower interest expenses could drive 16 percent PAT CAGR over the same period.

The near term uncertainties and the US FDA issues at Moraiya plant would be an overhang on the stock, until successfully resolved.

Brokerage: Aditya Birla Capital

Nestle India

Nestle with its strong parentage has built a strong brand with high brand recall and quality assurance. It enjoys leadership position in around 85 percent of its products with milk products and nutrition.

Since the Maggi incident, it has completely changed its approach from profitability driven growth to volume based growth approach where it has launched many products in short intervals and is aggressively increasing its reach. Given its strong parentage, Nestle globally has many product categories as well as many variants of the existing products which it is yet to launch in India.

Nestle has shown signs of aggressive growth in its existing categories as well as new categories. It is on path to lead with volume led growth, innovation based launches and increase in penetration. All these factors make us confident of sustainable growth story of Nestle and makes it most preferred bet in the FMCG space.

Brokerage: Prabhudas Lilladher

Hindustan Unilever

Hindustan Unilever (HUL) remains one of the best plays on HPC and foods segment given strong growth and margin outlook, high free cash flow conversion (5-year average of over 90 percent), 95 percent dividend payout and 18.2 percent PAT CAGR over FY21-23. We expect strong growth in coming couple of years led by 1) gradual recovery in personal care post COVID 2) market share gains in Laundry and Personal wash due to aggressive pricing and 3) Distribution and integration benefits from Glaxo Acquisition.

We remain structurally positive on HUL given its strategy around emerging categories, increasing distribution, WIMI, digital market and strength in Supply chain.

Dr Reddy's Laboratories

Dr Reddy's fortune turned around after Erez Israeli (CEO from CY-19) laid down the roadmap for transformation of the organization by ensuring clear strategic focus, effective cost management for sustainable growth. DRRD is one of the few companies whose all plants stands cleared by USFDA and have a strong product pipeline with high value and limited competition products like gCopaxone, gNuvaring, gVascepa, gKuvan and gRevlimid.

Its domestic formulations is also expected to outperform the IPM by 400-500bps once COVID concern fade while emerging markets would also spur growth with new launches. DRRD had been delivering EBITDAM 20%+ even before lockdown on a consistent basis. With better cost control than peers and strong product pipeline for US and EM, we estimate EPS CAGR of 15 percent over FY20-23 and value DRRD at Rs 5,964.

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.
First Published on Nov 17, 2020 10:25 am
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