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Brokerage firm Emkay Global is bullish on these 10 stocks, do you own any?

As the uncertainty persists, a stock-specific approach is what one needs to follow in this market.

October 06, 2020 / 02:07 PM IST
  • bselive
  • nselive
Todays L/H

The Indian market has been experiencing bouts of volatility as concerns over the COVID-19 pandemic and macroeconomic health of the country continue to persist.

Lacklustre global cues, rising coronavirus infections, caution ahead of US elections, uncertainty over the stimulus package and talks of another lockdown in several parts of the world have kept investors on the edge.

The Sensex fell by 1.45 percent and the Nifty 1.23 percent in September. On the other hand, BSE midcap inched up by 0.3 percent but the BSE smallcap index logged gains of 3.71 percent.

As the uncertainty in the market persists, a stock-specific approach is what one needs to follow in this market. Domestic brokerage firm Emkay Global Financial Services recommends "buy" on the following 10 stocks. Take a look:

BPCL | Target price: Rs 480


The brokerage firm believes that the marketing margins of BPCL, though not high in Q1, would still remain healthy, driving marketing profitability.

Benchmark GRMs are at zero levels, which imply a trough cycle. As per the brokerage, when the world economy recovers from COVID-19 and petroleum demand returns, GRMs are expected to increase substantially.

BPCL’s refining and marketing volumes, which are 10-15 percent down, would also normalise.

BPCL’s balance sheet would deleverage on the back of a 25 percent cut in capex, nil LPG and kerosene subsidy and working capital release. Further, oil at $45-50 a barrel would be positive to keep the internal consumption cost under control.

"The strategic disinvestment process is on and as private and global interests emerge, the stock could see further rerating. We value BPCL’s core business at 7 times blended EV/EBITDA, BORL-NRL at 5-6 times

EV/EBITDA and investments at a 30-50 percent discount," Emkay said.

Hero Motocorp | Target price: Rs 3,701

The company is a key beneficiary of domestic two-wheelers (2Ws) upcycle.

Strong rural presence with a wide distribution network (over 7,200 outlets) is likely to aid market share gains in the near term for the company, from 36 percent in FY20 to 38 percent to FY21E, the brokerage said.

In predominantly rural states (urbanisation rate below 25 percent), Hero Moto has a strong presence and a higher market share.

Hero MotoCorp continues with its market dominance in the motorcycles segment despite the competition and retains its number 1 spot in entry and executive motorcycles.

It has been able to defend market share due to its strong brand equity, solid product portfolio and extensive distribution network.

The company has been working on strengthening presence in premium motorcycles, and the recent launch of Xtreme 160R is a positive step.

Refreshes are expected from FY22 and multiple products are expected to be launched in the premium segment (150-400cc) over the next three-five years.

As per the brokerage, valuations are reasonable in light of growth prospects, strong ROCEs and healthy free cash flows.

NTPC | Target price: Rs 122

NTPC’s plant availability factor (PAF) has been improving since FY18 and reached 89.7 percent in FY20 against 85.7 percent in FY19 and 86 percent in FY18.

Power demand has been witnessing an uptrend since the beginning of the unlocking phase in June and September is expected to witness year-on-year (YoY) growth in power generation.

In addition, Q3FY21 should see a rise in demand due to the revival in economic activity, the departure of monsoon and the beginning of the festival season.

This will benefit NTPC, as the company is set to commercialise about 3.5GW capacity in FY21. This would enhance its regulated equity by 11 percent in FY21, said the brokerage.

"We continue to maintain our buy stance on NTPC as it continues to operate under a risk-averse regulatory business model where returns are fixed based on plant availability. Also, the stock is currently trading at

a historically low valuation of 0.7 times FY22E P/BV which is at nearly 40 percent discount to its historical average P/BV multiple of 1.2 times fwd P/BV," the brokerage said.

SBI | Target price: Rs 240

SBI has one of the lowest GNPA ratios among PSBs at 5.4 percent. The brokerage believes that the bank could be a significant beneficiary of any re-acceleration incorporate resolutions.

The impact of COVID-19 on SBI’s corporate portfolio will be fairly limited. The less vulnerable retail portfolio, coupled with the restructuring window, should contain the asset-quality impact.

SBI has built strong specific PCR among PSBs at 67 percent and will be a beneficiary of soft G-Sec yields which should help the bank shore-up COVID-19 provisioning buffer as well, said the brokerage.

SBI remains reasonably capitalised by PSB standards, with CET 1 at 10.1 percent and additional Tier I of 1.2 percent.

"We like SBI for its enviable liability profile, higher retail orientation, reasonable capital position and cheap valuations (0.3 times FY22E core ABV) post-stripping-off subsidiaries’ valuations," Emkay said.

"The risk of YES Bank bail-out by SBI, too, is off the table with YES raising more than survival capital recently without the support of SBI," Emkay added.

United Breweries | Target price: Rs 1,225

United Breweries offers a strong long-term growth opportunity in beer and is best-placed to emerge stronger after the pandemic and gain from a weaker competition.

Share gains have been consistent with portfolio expansion and better execution against peers.

The decline in volume/profitability in FY20/FY21 on account of steep inflation and COVID-19 impact is likely to be temporary.

Increasing normalcy and re-opening of the on-premise channel should help the category bounce back strongly in the coming quarters.

As per the brokerage, tax reversals in Delhi, Odisha and J&K are positive and further tax reversals, particularly in Telangana, West Bengal, Rajasthan and Andhra Pradesh could drive upsides to volume growth forecasts.

Softening input prices, along with recovery in volumes, cost-reduction measures and low competition can offer sharp improvement in margins.

"We forecast a full volume recovery by FY23 and 400bps margin improvement. At 44 times FY22E EPS, valuation appears attractive than peers," said the brokerage.

UPL | Target price: Rs 560

The brokerage expects revenue growth of 7.6 percent in FY21 and 9 percent in the remaining months of FY21.

This should be achievable given 8 percent YoY depreciation in USD/INR, translating into a 1 percent USD growth target.

UPL stands to benefit from the US-China trade war in the US as customers are looking to diversify to non-Chinese suppliers and higher corn purchases by China from Brazil.

"Management’s net debt/EBITDA target of 2 times (excluding perpetual bonds) by Mar-21 looks difficult to achieve. We are conservatively building in 2.5 times by Mar-21E, which is still a significant improvement

from 3.3 times as on FY20," Emkay said.

The brokerage believes that UPL is on the path to re-rate from its five-year low valuations toward its five-year mean valuations due to: 1) continued market share gains 2) margin improvement on the back of synergies and

3) reduction in adjusted net debt/EBITDA to 2 times by FY22E which could trigger a rating upgrade in FY22.

Birla Corporation | Target price: Rs 779

Birla Corporation is expanding grinding cement capacities by 25 percent in the western region, which should aid volume growth in mid-FY22/23E and help it touch 19.5mt capacity.

Recovery in cement demand in northern, central and eastern markets has surprised positively after easing of lockdown.

BCorp has taken cost-savings initiatives like a) solar power plants of 16MW which may yield cost reduction of Rs 10/ton and b) participation in coal block auctions which helped it to secure two coal mines—cost reduction of Rs 68/ton is possible when mining starts.

Apart from this, replacement of clinker transport from Maihar, MP to Mukutban, Maharashtra plant may help save Rs 23.10 crore (Rs 13/ton on the blended basis) for the Butibori grinding unit in  Maharashtra. Incentives from various state governments should boost EBITDA by 12-16 percent till FY23E.

BCORP is trading at 7.6 times FY22E EV/EBITDA and EV/ton of $67 on FY22E capacities, which is lower than the average valuation of our coverage universe and companies with similar capacities.

"We believe that the valuation multiple for BCORP will re-rate gradually as the company continues with capacity expansion plans. In the sector, companies that expanded capacities have generated higher stock returns. We have a buy rating on the stock, with a price target of Rs 779 (8 times Sep-22E EV/EBITDA and post-tax incentives at a WACC of 11 percent)," said the brokerage.

Granules India | Target price: Rs 340

Following capacity additions, the business momentum is strong, with revenue/EBITDA growth of 20 percent+/35 percent in FY20.

The brokerage expects the momentum to continue. Promoter pledge is down from 63 percent to 8 percent over the last few quarters; net debt/EBITDA is down from nearly 2.5 times in FY19 to nearly 1.5 times by

FY20E and less than 1 times in FY21E- driven by strong operational performance and stake sales in JVs.

FCF generation has been strong in FY20 at about Rs 260 crore (Rs 1 crore in FY19) as the CAPEX phase in largely over.

Persistent | Target price: Rs 960

Persistent’s services business continues to rebound led by the interventions undertaken by the new leadership.

Operating margins have significant scope for improvement led by 1) increasing share of the services business; 2) normalisation in operating levers like utilisation and 3) reduction in losses in the Alliance business.

The brokerage sees scope for ‘upside risks to estimates’ and potential re-rating for Persistent, given the relative discount to peers.

Varun Beverages | Target price: Rs 850

Visible market share gain opportunities and scope of distribution expansion in the juice category drive above-industry growth expectations (nearly 13 percent revenue CAGR over CY19-22E against 9.5 percent growth for the industry).

Best-in-class operational efficiencies with above 22 percent EBITDA margins in India provide a competitive edge and give us confidence on market share gain, said the brokerage.

Low-peak month plant utilisation (at less than 70 percent currently), coupled with strong revenue growth, should help improve RoIC, the brokerage said.

Disclaimer: The views and investment tips expressed by experts on are their own and not those of the website or its management. advises users to check with certified experts before taking any investment decisions.
Moneycontrol News
first published: Oct 6, 2020 02:07 pm

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