Bet on these top 11 stocks for 12-29% return as growth story likely to pick up soon

However, Nifty valuations appear fair at 22x FY20 PE, which may limit significant upside while stock specific action is likely to continue, he said.

Generally, most experts believe the market discounts earnings growth well in advance i.e. six to nine months before earnings show the real picture. And, now, as the growth story is likely to pick up from 2020 onwards, brokerage houses have selected a few stocks over the weekend that can return 12-21 percent by next 10-12 months.

Here is the list of 11 stocks which could return 12-29 percent:

Brokerage: Centrum Broking

HDFC AMC: Buy | Target: Rs 3,447 | Return: 15.1 percent

We initiate with buy rating on both HDFC Asset Management Company. HDFC AMC is the largest AMC in India. We believe it is likely to see earnings compounding given high brand equity of the HDFC group, strong pan-India distribution network, operational efficiency, focus on the higher-yield equity segment, and consistent fund performance over the past, which have led to the company’s healthy AUM growth at highly profitable levels.

We value HDFC AMC at 48.1x FY21E P/E resulting in a target price of Rs 3,447 (implying 15.1 percent potential upside).

Risks include reduction in financial savings rate, potential negative news on the brands, and underperformance of schemes.

Reliance Nippon Life | Target: Rs 421 | Return: 16.3 percent

Reliance Nippon Life Asset Management (RNAM) is the fifth largest AMC in India. It is focused on building granular retail AUM via presence in B30 cities (beyond top 30 cities) through a large distribution network of independent financial advisors (IFAs).

Nippon Life Insurance of Japan has recently completed the acquisition of the previous promoter's (Reliance Capital) stake. In our opinion, the Nippon Life brand is likely to aid RNAM in getting better flows from domestic corporates and the offshore segment going forward.

We value RNAM at 40.8 FY21E P/E resulting in a target price of Rs 421 (implying 16.3 percent potential upside).

Risks include reduction in financial savings rate, potential negative news on the brands, and underperformance of schemes.

Brokerage: BP Equities

United Spirits: Buy | Target: Rs 750 | Return: 18 percent

United Spirits Limited (USL) is an established leader by virtue of its strong portfolio and benefits from the guidance of Diageo. Company’s strong focus on premiumisation coupled with rising disposable income and changing customer lifestyles provides significant opportunity to grow sales and expand margins.

Moreover, their focus on the franchisee model in the popular segment to garner more foot-falls. Owing to ample opportunities , its strong distribution network and its consumer outreach provides visibility and higher thrust for future growth. On valuation front, we estimate Revenue and PAT to grow at 11 percent and 29 percent CAGR for FY19-FY21 respectively with a decrease in tax rate bracket from 35 percent to 25 percent. We have valued the company based on 47x PE of FY21E and assign a buy rating on the stock with target price of Rs 750.

Brokerage: Karvy Stock Broking

L&T: Buy | Target: Rs 1,700 | Return: 17 percent

A significant jump in order inflow and continued improvement in return on equity (RoE) were heartening despite moderate deterioration in working
capital. Going forward, given strong order pipeline and likely revival of ordering activities from the government side, we expect momentum in order inflow to sustain as well.

We continue to view L&T as the best infrastructure player in India considering huge opportunity, proven execution track record and strong diversification. We maintain our buy recommendation on the stock with a revised SOTP-based target price of Rs 1,700 with an upside potential of 17 percent.

However, the key risks involve delays in the government infrastructure spend, the delayed pick-up in private sector spend and stressed payment cycles for government projects.

Indoco Remedies: Buy | Target: Rs 189 | Return: 17 percent

We downgrade our revenues for FY20E/FY21E by 6.4 percent/4.7 percent due to the downgrade in regulated markets and API revenues. We downgrade our EBDITAM for FY20E by 30 bps on account of lower gross margins and higher other expenses while we upgrade our EBDITAM by 90 bps for FY21E due to better gross margins, lower staff cost and R&D expenses.

We downgrade our FY20E EPS by 10 percent to Rs 4.5 while we upgrade our EPS by 1.7 percent to Rs 13.5 for FY21E. We revise our price target to Rs. 189 based on 14x FY 21E and maintain our buy on the stock.

Brokerage: SMC Global

Cholamandalam Investment: Buy | Target: Rs 368 | Return: 21 percent

According to the management, the company was able to clock robust growth in AUM of over 30 percent. The company, having seen similar business cycles in the past, is well-equipped to manage the concerns emerging from auto sector slowdown and continue its growth trajectory. The Home Equity and the Home Loan businesses are also clocking steady growth – the exit of other weaker players from the market has led to a higher customer retention and disbursement growth in these businesses.

It remains cautiously optimistic of its growth plans. Thus, it is expected that the stock will see a price target of Rs 368 on a P/BV multiple of 3.86 times its FY 20E BV of 95.31.

Heidelberg Cement: Buy | Target: Rs 227 | Return: 21 percent

The management of the company expects the demand to grow 6-7 percent in CY2019. The growth would largely come from Tier-II/III cities. The company expects that the stability in the government will increase the speed of investments in infrastructure projects i.e. concrete roads, railways, metros, civil aviation, irrigation, mega industrial and freight corridors etc.

It has strong positioning in the central market and a superior margin profile compared to peers. Firm cement prices in the central region and strong operating leverage will continue to aid earnings. The company has taken a slew of measures to cut down its production costs which will bore well going ahead.

Thus, it is expected that the stock will see a price target of Rs 227 in 8 to 10 months time frame on three-year average P/BV of 3.32x and FY20 expected book value (BVPS) of Rs 68.49.

Brokerage: Anand Rathi

Indraprastha Gas: Buy | Target: Rs 450 | Return: 15 percent

The government has envisaged to provide one crore connections by 2020 and has set aggressive targets for providing PNG connections. In line of the same, the company has also set high targets for PNG domestic connections.

The government's process of developing smart cities will have a strong infrastructure of clean and efficient fuel which would add to the growth prospects of the company.

There is concern for increased population in the country. In order to curb the same, judiciary, central and state governments are giving boost to eco-friendly fuel i.e. CNG and PNG.

We expect the volume growth momentum to continue for the company as the company plans to invest Rs 1,170 crore on capex in FY20 mainly on CNG stations, PNG pipelines and development of city gas distribution networks in new geographic areas.

Going forward, we believe, given the company’s good pricing power, IGL will continue to pass on any upward revision in domestic gas prices, thus, maintaining margins.

At CMP, the stock is trading at 24.9x FY20E EPS and 21.9x FY21E EPS. We recommend BUY on the stock with a target price of Rs 450 per share

Bharat Electronics: Buy | Target: Rs 135 | Return: 12.5 percent

The management remains confident in achieving the revenue growth of 12 percent to 15 percent and EBITDA margin of 20 percent to 21 percent in FY20.

Recently, the company bagged the much-awaited large ticket order to deliver surface-to-air Akash Missile System to seven squadrons of the Indian Air Force over the next three years. For FY20, BEL has already booked order inflows of Rs 9,000 crore and expects about Rs 15,000 crore for full year.

Further, BEL remains committed to boost its in-house R&D with focused engagement with DRDO, National Labs, Academia, Foreign Design Houses, etc. BEL is continuously investing 8-10 percent of its turnover in R&D year-on-year basis.

Additionally, inventory days fell substantially from 180 days in FY18 to 136 days in FY19, reflecting improved inventory control.

We remain optimistic on BEL given its strong order book position, expertise in executing complex projects, healthy client base, cost reduction efforts and diversification initiatives.

At CMP, the stock is trading at 15.5x FY20E EPS and 2.4x FY21E EPS. We recommend BUY on the stock with a target price of Rs 135 per share.

HDFC: Buy | Target: Rs 2,539 | Return: 19 percent

HDFC will continue to benefit from its strong market position, continued growth in loans, healthy asset quality and stable spreads. Also, the company remains focused on marketing, distribution and digitisation in order to expand reach and boost operational efficiency.

In terms of macro scenario, the domestic mortgage has plenty upside with low penetration levels. Housing loans, as a percentage of nominal GDP in India, has remained quite low at around 11 percent which is significantly lower than the levels achieved in most of the developed countries (Thailand-20 percent, China-26 percent, USA-50 percentandUK- 66 percent). Favourable government policies and initiatives focused on affordable housing creates impetus in the housing sector.

Further, rapid urbanisation, emergence of nuclear families, young Indian population, increasing disposable income and improving afford ability will continue to be the demand drivers in the sector.

Given HDFC’s solid fundamentals and favourable macro traits, we believe the company is well positioned for long term growth and initiate our coverage on Housing Development Finance Corporation (HDFC) with a buy rating and a target price of Rs 2,539 per share.

Vinati Organics: Buy | Target: Rs 2,810 | Return: 29 percent

Given Vinati Organic’s market leadership in its key products, sound financials and ongoing expansion and diversification projects; we believe the company is well positioned for continued growth and initiate our coverage on Vinati Organics Ltd. with a buy rating and a target price of Rs 2,810 per share.

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