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Last Updated : Oct 21, 2019 08:19 PM IST | Source: Moneycontrol.com

Brokerages initiate buy call on these 11 stocks in October which could return 10-73%

Hence here are 11 stocks where brokerages initiated coverage with a buy call, which could give 10-73 percent return:

Sunil Shankar Matkar

After logging a solid 5 percent gain in September, the Indian market has largely remained rangebound in the month of October. Benchmark indices Nifty and Sensex are around the same levels recorded at the beginning of the month.

The broader markets have taken some beating this month as mid and smallcap index underperformed the frontliners. BSE Midcap index fell more than a percent and Smallcap index lost nearly 3 percent. However, the rate of fall has decreased compared to previous months.

So far, the September quarter earnings of India Inc have largely remained as per the expectations of the street. Hence, the market has not witnessed any knee jerk reaction and has also found support from government measures announced since August.

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The corporate tax cut of 10 percent will also help companies improve their profit level September quarter onwards, which will provide support.

Also, foreign institutional investors (FIIs) have turned net buyers in the last four sessions, buying Rs 2,700 crore worth of shares.

All these seem to be helping the market and hence this is the right time to buy quality stocks which could give strong returns in the next one year and could also be benefitted from recent measures taken by the government along with positive global cues, experts said.

"A stable government, aggressive policy reforms of far-reaching consequences, lower interest rate trajectory, good monsoons, stable rupee and range-bound crude oil prices are seeds for economic revival. We expect the economy to be back on track from FY21 onwards as benefits of the recent tax reforms will play out in full throttle," India Nivesh said.

Aditya Birla Capital said while the slowdown started last year, with the NBFC fiasco, and has moved to other parts of the economy (autos, discretionaries and some parts of staples too), long term investment portfolios are built precisely during these challenging times.

Hence here are 11 stocks where brokerages initiated coverage with a buy call, which could give 10-73 percent return:

Brokerage: Jefferies

Finolex Industries: Buy | Target: Rs 690 | Return: 11 percent

Supreme Industries: Buy | Target: Rs 1,350 | Return: 10 percent

We believe the Indian pipes industry is well-poised for a multi-year dream run, bolstered by the government's impetus for agriculture, housing & infra, coupled with a fillip to organised volumes, courtesy GST & E-Way Bill.

Also, buttressing growth in the value-added product diversification embarked upon by key players will enhance their profitability.

We initiate buy call on Finolex Industries (target price Rs 690) and Supreme Industries (target price Rs 1,350). The key trigger is diversification into value-added sales streams (adhesives, packaging, consumer products, CPVC pipes etc.) which command premium valuations over pure-play PVC pipes. Superior growth prospects with financial discipline (high return ratios, nil D/E, robust FCFF) should support multiples.

Brokerage: Axis Securities

Dixon Technologies: Buy | Target: Rs 3,649 | Return: 18 percent

Dixon Technologies (Dixon) is a leading manufacturer of products for consumer durable brands in India. It has around 9.3 percent share in electronic manufacturing services, providing cost-efficient, end to end solutions to MNC’s and domestic OEM’s.

Dixon’s products include (i)consumer electronics - LED TVs, (ii) home appliances - Washing Machines, (iii) lighting products - LED bulbs (iv) mobile phones and (v) CCTV & DVR. The company also provides repairs and refurbishment services through its reverse logistics segment.

Dixon is a leading player in Flat Panel Display (FPD) TV with more than 50 percent market share; in LED lighting it accounts for more than 35 percent domestic volumes and commands more than 40 percent share in the Washing Machines EMS market.

We expect revenues/earnings to grow at CAGR of 26 percent / 42.8 percent respectively over FY19-21E driven by

  • Increasing EMS opportunities across segments and a higher share of ODM revenues;

  • Faster adoption of consumer durables by younger population propelled by an increase in disposable income;

  • Strong growth led by backward integrated cost-effective manufacturing and diverse product offerings;

  • Higher contribution from FPD TV, lighting & washing machines segments; recovery in mobiles and strong growth in security systems.

We initiate coverage with a buy rating and a target price of Rs 3,649 i.e. 18 percent upside (implies 32x FY21E).

Brokerage: Nirmal Bang

Orient Electric: Buy | Target: Rs 197 | Return: 12 percent

We remain optimistic about a healthy 8-10 percent CAGR in the consumer electricals industry over the next five years, aided by increasing urbanisation, enhanced rural electrification, rising preference for aspirational and premium products and a gradual shift from unorganised players to organised brands.

Orient Electric is well placed to reap the benefits post its recent demerger aimed at renewed focus on accelerating the core electrical business under new senior management.

Strong innovation capabilities, rising premiumisation, enhanced distribution network, superior brand positioning, healthy market share in Fans and scaling up of appliances and switchgear will aid Orient Electric to post above-industry revenue growth of 15 percent CAGR over FY19-FY22E. While Orient Electric has strong gross margin of 34-35 percent, next only to Havells, its EBITDA margin profile is lower than peers at 7-8 percent.

We expect a healthy 150bps expansion in EBITDA margin over FY19-FY22E. Margin expansion coupled with lower tax rates will lead to 26 percent earnings CAGR over FY19-FY22E. We initiate coverage on Orient Electric with a buy rating and a target price of Rs 197 based on 33x September 2021E earnings.

Brokerage: Centrum Broking

Ashoka Buildcon: Buy | Target: Rs 180 | Return: 73 percent

Ashoka Buildcon’s (ABL) execution, despite a healthy order backlog, continues to be held back by delays in land acquisition. As a result, we expect only a moderate revenue CAGR of 13.6 percent over FY19-21 leading to a 2.8 percent/8.4 percent earnings growth in FY20/FY21. While debt levels are likely to rise, ABL’s leverage at 0.3x D/E and 1.5x Debt/EBITDA should remain comfortable. ABL and SBI-Macquarie (SBI-M) have initiated the process of monetising their investments in Ashoka Concessions (ACL) and target to complete the same by March 2020.

Timely monetisation will aid debt reduction at ABL and also act as an upside trigger for stock. Inexpensive valuations at 7.4x FY21E earnings (unadjusted) restrict downside. Initiate with buy & SOTP based target price of Rs 180.

Brokerage: Edelweiss

Inox Leisure: Buy | Target: Rs 475 | Return: 34 percent

Inox Leisure, India’s second-largest multiplex operator, is an attractive play owing to its aggressive expansion plans, premiumisation, and ramp-up of margin-accretive ad and F&B revenues, not to mention the closing gap with market leader PVR. With a healthy balance sheet and negative working capital, the company is well placed to expand.

We estimate Inox would clock CAGRs of 19 percent in revenue and 35 percent in EPS over FY19–21 and are initiating coverage on the stock with a buy at a PE of 20x (33 percent discount to PVR) December 2020E EPS (ex-IND AS 116), which yields a target price of Rs 475.

Brokerage: JM Financial

Aster DM Healthcare: Buy | Target: Rs 185 | Return: 56 percent

Aster DM is an attractive play on the mandatory insurance coverage in GCC and the increasing insurance penetration in India. With a presence in 7 GCC countries and an established brand in south India, Aster has a well-diversified business profile with a strong base in high realisation geographies and is best-positioned to benefit from a boost in medical tourism.

Aster's presence across business segments - hospitals, clinics and pharmacies - and geographies offers multiple synergies with Indian nationals accounting for 61 percent of the doctor strength in its GCC network and patients from GCC being transferred to India for complex tertiary care. Favourable demographics, an increase in lifestyle-related diseases and growing healthcare penetration in its core markets put Aster DM in a sweet spot for growth.

Aster has a strong track record of delivering steady financial performance and improvement in operating metrics. Aster's blended ARPOB has increased from Rs 46,200 in FY17 to Rs 60,100 in FY19 with occupancy remaining stable at 61 percent during this period even as one-third (8/25) of the hospitals in its network were established in the last 3 years. Given its young hospital network and the expected increase in occupancy in new facilities going forward, we expect revenue & adjusted EBITDA CAGR of 13 percent & 17 percent respectively over FY19-22 with a maturing network expected to result in an improved margin profile (FY22E adjusted EBITDA Margin at 12.2 percent vs 10.8 percent in FY19).

With clinics and pharmacies in GCC growing at a steady pace, the ramp-up in new facilities resulting in operating leverage playing out and moderation in capex expected to result in Aster turning FCFF positive in FY20, we believe that the risk-reward is extremely favourable at the current valuation and a re-rating is imminent.

Brokerage: SMC Global Institutional Equities

Polycab India: Buy | Target: Rs 874 | Return: 21 percent

Polycab is the largest manufacturer of wires & cables (W&C) in India possessing a market share of 18 percent in organised sector and 12 percent market share overall. In the last five years, the company has successfully forayed into fast moving electric goods (FMEG) segment.

Ability to deliver healthy growth on the back of diversified product portfolio, extensive dealer network, improving brand image and focusing on maintaining cash flows are the key strength of the company. We reckon with huge opportunities in the offering by industry, steady performance in W&C segment and improving profitability in FMEG segment, Polycab should be an ideal stock in an investor’s portfolio. We initiate coverage on the company with a buy rating.

Brokerage: BP Wealth

Fine Organic Industries: Buy | Target: 2,141 | Return: 10 percent

With global leadership position in slip additives and its proprietary technology to manufacture green additives provide a competitive edge to FOIL. Going forward, we expect the company to continue its growth strategy on back of volume growth in light of planned capacity expansion, growing demand for green additive from the food industry, changing customer preferences and better business mix. Over FY19-22E, FOIL is expected to post 17.4 percent/16.7 percent/ 24.4 percent revenue /EBITDA/ PAT CAGR with 30 percent return ratios.

We believe FOIL will continue to strengthen its balance sheet with strong cash flow generation of Rs 320 crore over FY19-22E. Considering the expected strong growth in profitability, healthy balance sheet, improving return ratios and complex nature of the business with high entry barriers, we are optimistic about the long-term growth prospects of the company.

Global peers are trading at PEG ratio of 2.5-3x (2-year CAGR), as they enjoy large scale and global leadership position compared to FOIL. Therefore we value FOIL at ~1x PEG and assign P/E of 25x on Its FY22E earnings. We initiate coverage on the stock & recommend buy rating with a target price of Rs 2,141 per share.

Brokerage: Investec

Muthoot Finance: Buy | Target: Rs 770 | Return: 14 percent

After facing several headwinds in FY13-18 (demonetization, regulations, and gold prices), Indian Gold Financiers witnessed improved growth in FY19 on the back of a rise in gold prices and liquidity issues in NBFCs. These two issues being cyclical and with Gold finance fairly well penetrated, we expect growth to normalize to around 10 percent CAGR over the medium term. With their specific focus, specialized gold financiers (GFCs) should grow at a slightly better rate (12 percent CAGR). Though GFCs are profitable (20 percent+ RoEs), lower growth in Gold business segment is forcing them to diversify to newer segments.

We believe returns of capital to shareholders would have been a better focal point, as GFCs have no competitive edge in newer segments. We prefer Muthoot on account of its cost leadership, high profitability and cautious diversification. Initiate Muthoot Finance at buy.

Brokerage: Indsec Securities

Nocil: Buy | Target: Rs 141 | Return: 23 percent

We believe Nocil is well-positioned to capitalise on the structural changes in the industry and strengthen its competitive positioning against international peers. This would be backed by capacity expansion by tyre companies, shift towards radial tyres (requires ~1.3x-1.4x rubber chemicals as compared to bias tyres) and no major capacity expansion by the peer group.

Further, the imposing of duty by the US on China offers huge growth opportunities for Nocil. The only glitch we perceive in the short term is the outcome of the anti-dumping duty extension status requested by the company. Non-acceptance of this could impact margins and volume. However, we have factored for the same in our estimates and remain positive on the growth aspects of the company in the backdrop of above-mentioned factors.

Thus, we assign a target PE multiple of 10x on our FY21E earnings of Rs 14.1, post which we arrive at a target price of Rs 141 per share. We initiate coverage with a buy call on the stock.

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.

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First Published on Oct 21, 2019 08:54 am
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