Moneycontrol
May 15, 2018 12:04 PM IST | Source: Moneycontrol.com

BJP seen emerging as single largest party in Karnataka; 10 stocks that could deliver up to 44% return

The market’s focus will increasingly shift to macros and earnings. India’s macros have weakened considerably in the past few months. It will have to likely contend with a weaker macro in CY18/FY19 versus CY17/FY18 given the likely higher inflation/interest rates and possibly higher current account deficit/weaker currency, Kotak Institutional Equities said in a recent note.

Kshitij Anand @kshanand
 
 
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The Bharatiya Janata Party (BJP) on Tuesday managed to sweep a key election state— Karnataka. The ruling party was leading in as many as 110 seats and was seen emerging as the single largest party in the state.

The Karnataka unit of Congress has conceded defeat. JD(S) meanwhile said it accepted people's mandate and congratulated the BJP on its success in the assembly polls.

A BJP-led government in Karnataka would prove a major boost for Modi ahead of the 2019 elections, silencing critics who said his popularity had faded over the rocky adoption of a nationwide sales tax and a sudden ban on high-value notes late in 2016.

Modi's Bharatiya Janata Party was leading in 114 seats in the elections to the 225-seat state assembly, the Election Commission of India said. Congress was leading in 55 seats.

Going forward, state election results will play an important role in providing short-term direction to market. In the long run, the market has pinned its hopes on an earnings recovery and stocks which can still offer steady growth rate.

The Q4 FY18 results were largely inline with the Street’s estimates, despite a big miss by Axis Bank on account of higher slippages. Most experts are factoring in a steady recovery in earnings in FY19 and FY20, in spite of the recent deterioration in macros.

The market’s focus will increasingly shift to macros and earnings. India’s macros have weakened considerably in the past few months. It will have to likely contend with a weaker macro in CY18/FY19 versus CY17/FY18 given the likely higher inflation/interest rates and possibly higher current account deficit/weaker currency, Kotak Institutional Equities said in a recent note.

Going forward, the best bet for investors is to remain stock-specific, which holds potential to outperform benchmark indices in the next one-year. "Given the deterioration in macros, investors would do well to stay invested in companies that are delivering healthy earnings growth," Sanjeev Zarbade, Vice-President-PCG Research at Kotak Securities, said.

Here is a list of top 10 stocks that could deliver up to 44 percent return in the next one-year:

Sun TV: Buy| Target: Rs 1250| Return 44%

CLSA maintains a buy on Sun TV post Q4 results with a target price of Rs 1,250. The broadcaster reported a 22.82 percent increase in the net profit at Rs 289.76 crore for the fourth quarter ended March 31, 2018. The company had reported a net profit of Rs 235.91 crore during the corresponding quarter last year.

Ad growth remains strong while Tamil Nadu digitisation boosted subscriptions for Sun TV said the CLSA report. As per the management, the recovery in ad revenue could sustain in future as well.

CLSA expects Sun TV to deliver 17 percent CAGR earnings over financial years 2018 to 2021.

Titan Company : Outperform| Target: Rs 1050| Return 10%

CLSA maintains an outperform rating on Titan Company but raised its 12-month target price to Rs1,050 from Rs 950 earlier. The Tata Group firm reported 70.86 percent jump in consolidated net profit at Rs 304.41 crore for the fourth quarter ended March 31.

According to the global brokerage firm, Jewellery Ebit growth of 60 percent marks a great finish to FY18. The management reiterated its commitment to grow jewellery revenues by 2.5x in the next five years. However, performance eyewear remained muted in Q4.

Titan Company MD Bhaskar Bhat said while jewellery and watches business did well, its "eyewear business went through a tough period, especially in the sunglass segment".

For the 2017-18 financial year, Titan reported net profit of Rs 1,101.91 crore compared with Rs 697.28 crore in the previous year.

Dabur India: Buy| Target: Rs 430| Return 18%

Citigroup maintains a buy call on Dabur India post Q4 results with a 12-month target price of Rs 430. The result is a beat on profits which was much sharper as EBITDA/PAT rose 16%/19%.

The key drivers of margin improvement include lower promotions, favourable mix, and GST related gains. The stock is a play on the expected rural growth and improvement from overseas markets, said the Citigroup report.

Nestle India: Outperform| Target: Rs 10,200| Return 7%

CLSA maintains an outperform rating on Nestle India post Q4 results but raised its target price to Rs 10,200 from Rs 9,750 earlier. Nestle India started 2018 on strong footing with notable margin gains.

The margin uptick was largely backed by low commodity prices, particularly milk and milk solids. The stock is trading at 53x one-year forward PE which is slightly high but should sustain in the context of over 20 percent EPS CAGR.

Jubilant Foodworks: Buy| Target Rs 3150| Return 27%

CLSA maintains a buy rating on Jubilant FoodWorks post Q4 results but raised its target price to Rs 3,150 from Rs 2,800. The company reported Q4 marginal beat in Ebitda and margins.

The company reported strong earnings growth likely to drive stock. Going forward, strong SSSG coupled with margin expansion to drive over 40 percent EPS CAGR over FY18-20.

Petronet LNG: Buy| Target Rs 310| Return 44%

Citigroup maintains a buy rating on Petronet LNG with a target price of Rs 310. At current levels, the risk-reward is fairly attractive for investors.

Investors are largely nervous on the start-up of Mundra Regas Terminal & FSRU by H-Energy at Jaigarh. However, Citi believes that Mundra could get to 30 percent utilization in the near term.

Kotak Mahindra Bank : Buy| Target: Rs 1400| Return 11%

Nomura maintains a buy call on Kotak Mahindra Bank but raised its 12-month target price to Rs 1,400 from Rs 1,150 earlier.

The bank will remain a compounding story, said the global investment bank factoring in a 24-25 percent CAGR over FY18-21. It expects cost ratios to continue to moderate. Overall, Nomura expects over 25 percent PPOP CAGR over FY18-21.

ICICI Prudential Life Insurance Company : Buy| Target: Rs 570| Return 25%

Nomura maintains a buy call on ICICI Prudential with a target price of Rs 570. The global investment bank expects value on new business (VNB) margins to improve further over the medium term.

It also expects VNB margins at 18-19 percent for FY18, and over FY19-20 it could sustain at 18.5 percent. Improvement in protection mix, better margins in ULIPs, lower opex ratio and tax rate aid margins growth said the investment bank. ICICI Prudential remains preferred life insurance pick.

HDFC: Outperform| Target: Rs 2,305| Return 20%

Macquarie maintains an outperform rating on HDFC with a target price of Rs 2,305. The Q4 net profit was largely in-line with estimates adjusted for one-offs. It looks like HDFC is going down the market chain to deliver growth, said the note.

The main catalyst is the HDFC AMC IPO and increases in stake in HDFC Bank. Return of AUM growth could only drive core-book value re-rating for the counter.

Hindustan Zinc: Buy| Target: Rs 390| Return 30%

HSBC maintains a buy recommendation on Hindustan Zinc but raised its 12-month target price to Rs 390 from Rs 370 earlier.

The Q4 EBITDA was broadly in-line with estimates. Tightening of Zinc market and rise in silver output supported robust outlook for the counter. The global investment bank raised FY19/20 EBITDA estimates to factor in higher silver guidance and weak rupee.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol are their own and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.

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