Correction is expected to continue, but this is the right time to accumulate quality stocks, most of experts feel
The market has fallen about 14 percent in last 12 sessions. In fact on March 9 itself, the benchmark indices skid nearly 5 percent each.
The sentiment on the Street was already depressed due to the fast-spreading novel coronavirus, and the oil price war between Saudi Arabia and Russia made the situation worse.
Correction was seen across the globe with Asian peers falling 3-7 percent, while European markets fell 8 percent and US indices were down 7 percent.
Investors got more worried after India also started reporting more virus infected cases than earlier.
FIIs net sold more than Rs 17,000 crore worth of shares in March so far, taking the total outflow to over Rs 35,000 crore since January 2020.
Concerns over global growth dampened sentiment as death toll due to virus jumped to over 3,600 with more than 1.07 lakh infected cases worldwide, though several central banks including Federal Reserve, Bank of Canada etc chipped in to support the economy by announcing 50bps interest rate cut with $50 billion infusion by International Monetary Fund.
Hence, despite the consistent coordinated approach by central banks, the recession fears loom large on the world given the crash in oil prices and rising virus cases, experts feel.
"Risk of recession increased fuelled by crash in crude oil prices and increasing virus cases outside China. Even though fall in crude oil prices is positive for India in the long term, short term concerns weighed with FII outflow in emerging markets," Vinod Nair, Head of Research at Geojit Financial Services told Moneycontrol.
Coronavirus fear is intensifying and fresh travel bans seems to hurt the global economic sentiments more than feared, he said.
Correction is expected to continue, but this is the right time to accumulate quality stocks, most of experts feel.
"I believe this is a good time to buy quality stocks for long term, though it is difficult to ascertain that this is the bottom of the market," said Market Veteran Madhu Kela who feels this is not like the 2008 crisis.
As lot of quality stocks available at attractive valuations due to recent sharp correction and considering there are lot of opportunities due to temporary supply chain disruption in the world, the brokerage houses in March picked 9 stocks where they also initiated coverage with buy call.
Here are nine stocks where analysts initiated a buy call in March, which could return 24-56 percent in next one year:
Bandhan Bank: Buy | Target: Rs 500 | Return: 34 percent
"Bandhan bank has demonstrated a strong track record in growing its balance sheet/earnings and maintained a robust market share/cost leadership with its low-cost DSC network. It has also deftly handled external events like demonetization/GST, wherein it restored the normal delinquency rate within three months," Motilal Oswal said.
The brokerage estimated loan book/earnings CAGR of 26/24 percent over FY20-22, driving industry leading return on assets (RoA) / return on equity (RoE) of 3.7/23.4 percent for FY22.
"With its share of volatility, Bandhan Bank offers a great long-term investment opportunity as the stock has corrected significantly," said the brokerage while initiating coverage with a buy rating and target price of Rs 500.
Essel Propack: Buy | Target: Rs 210 | Return: 24 percent
Motilal Oswal believes that Essel Propack (EPL) is well positioned to benefit from healthy FMCG sales and the increasing usage of laminated tubes in the packaging industry.
EPL is a dominant player as it (a) is a global market leader in the Oral Care tubes segment, (b) has a diversified geographical presence, (c) has a diversified product portfolio, (d) is improving its product mix, (e) has a new management and re-defined growth strategy, and (f) benefits from innovation and scale of operations.
"The company is expected to generate strong cash flow from operations (CFO) / free cash flow (FCF) of Rs 1,300/Rs 770 crore over FY20-22, turning into a net cash position of Rs 4.5 crore (currently net debt at Rs 330 crore). Its RoCE is expected to increase to 15.6 percent by FY22 from 11.5 percent in FY19," said the brokerage while initiating coverage on EPL with a buy rating.
Bajaj Electricals: Buy | Target: Rs 586 | Target: 44 percent
"Bajaj Electricals (BJE) is getting its mojo back in the consumer appliances business. The company has outperformed industry and majority of its peers post the overhaul in its distribution strategy (start-FY19). The new strategy has been well appreciated by its channel partners and would aid in outperforming the industry over the next two years, with deeper channel penetration and increasing shelf space," Yes Securities said.
According to the brokerage, EPC business is expected to consolidate as the company focusses on improving cashflows and RoC. "Margins are expected to improve from H2 FY21 as legacy orders are executed and reduction in fixed costs post project closures."
"We expect earnings to recover sharply over FY20-22E as EPC business turns around, CP business performance strengthens and interest costs halve. Robust earnings recovery coupled with improvement in return ratios, balance sheet and rising share of CP business would lead to valuation re-rating," said Yes Securities while initiating coverage with a buy rating for a price target of Rs 586.
PSP Projects: Buy | Target: Rs 707 | Return: 52 percent
"PSP Projects, a renowned Gujarat focused contractor is one of the few EPC contractors generating positive free cash flows and ROE of around 27 percent," Yes Securities said.
Company has entered the big league by bagging the Surat Diamond bourse (SDB) project which is under execution. Post execution of SDB, PSP's pre-qualification would increase to around Rs 2,500 crore, said the brokerage, adding PSP's one-stop-shop solution - comprising of planning and design, construction, and post-construction services - aids company with plentiful opportunities.
"We believe strong order book, robust order pipeline and execution capabilities would translate into around 26 percent revenue CAGR over FY19-22E. The operating margin is likely to remain at an elevated level of around 14 percent," said Yes Securities while initiating coverage on the stock with a buy for target price of Rs 707.
Suprajit Engineering: Buy | Target: Rs 235 | Return: 36 percent
Suprajit Engineering (SEL) is a 35-year old, Bangalore based, niche manufacturer of mechanical control cables (80 percent of Revenue – 31 percent Exports, 49 percent Domestic) and automotive bulbs (20 percent of revenue – 10 percent Exports, 10 percent Domestic). 73 percent of its Mechanical control cable (MCC) revenue comes from the auto sector - domestic 2W OEM being the biggest segment where it has around 80 percent market share and is the only large listed player in this space.
"Our positive view on the company stems from the facts that: 1) It is gradually gaining market share in high volume, high realisation 4W space, 2) Acquisition of Osram’s facilities will spur its Phoenix Lamps division and help introducing bulbs in new segments, 3) There are huge untapped opportunities in aftermarket & exports which SEL is actively pursuing, 4) SEL plans to expand into newer segments in non-auto MCC, and 5) Suprajit is steered by able & ethical management, a much-desired aspect in today's time," said East India Securities while initiating coverage with a buy rating and a target price of Rs 235.
Birla Corporation: Buy | Target: Rs 967 | Return: 42 percent
Birla Corporation, the flagship company of M P Birla Group, has its presence in North, Central and East regions. It is expanding grinding cement capacities by 33 percent in West/Central regions, which should help it achieve 20mt capacity and aid volume growth by mid-FY22/23, said Emkay Global while initiating coverage with a buy rating and a target of Rs 967.
The stock is trading at 7.2x FY22E EV/EBITDA and EV/ton of USD72 on FY22E capacities, much lower than other companies with similar capacities, said the brokerage which believes that the focus on capacity additions without straining the balance sheet should drive a stock re-rating.
It feels incentives from various state governments should boost EBITDA by 12-16 percent till FY23E. "Improvement in clinker utilization in North, Central and East regions during FY20-22E should help in improving/stabilizing cement prices in these regions."
Glenmark Pharma: Buy | Target: Rs 390 | Return: 47 percent
Nirmal Bang initiated coverage on Glenmark Pharma with a buy rating and a target price of Rs 390, based on 11x FY22 EPS.
"The target valuation multiple represents a steep discount to peers given that for more than a decade the company has been incurring a disproportionately large investment in NCE R&D - a high risk investment avenue. The stock can rerate and trade at higher multiples depending on the company’s execution on its guidance of containing R&D spend and reducing debt," said the brokerage.
Currently, the combination of financial risk and business risk (NCE development) is suppressing valuation multiples, it aded.
Ujjivan Small Finance Bank: Buy | Target: Rs 56 | Return: 37 percent
IIFL initiated coverage on Ujjivan Small Finance Bank (USFB) with a buy rating, at a target price of Rs 56 per share. USFB, listed recently, is the bank held by Ujjivan Financial Services (UFSL).
"Key profitability drivers would be elevated momentum in loan growth, improving liability profile and operating leverage. This would enable USFB to deliver +2 percent RoA/around 18 percent sustainable RoE over FY20-22," said the brokerage.
Business risks would be mitigated by further product diversification, traction in retail deposits and ability to protect NIMs, it added. The requirement to bring down the holding company's stake to 40 percent by January 31, 2022 would be a key overhang, it feels.
Laurus Labs: Buy | Target: Rs 623 | Return: 56 percent
"Laurus' franchise stands on Dr Satyanarayana's process-chemistry skills and experienced professionals in R&D, quality, US generics, and synthesis. This ensures process innovation, cost leadership and operational flexibility. For e.g. disruptive ARV API processes helped garner 18 percent market share in TLD," said Ambit while initiating coverage with a buy call and target of Rs 623.
Laurus also emerged from input supply issues in FY19 by backward integrating into KSMs / intermediates (e.g. gemcitabine).
"Our 22 percent FY20-22 EBITDA CAGR estimate and 8 percent capex / sales would push pre-tax return on capital employed (RoCE) to 17 percent. Expected 15 percent EBITDA CAGR over FY20-25 will be through: 1) 20-25 percent ARV formulation market share attainment, 2) mix-accretion via synthesis and onco APIs, and 3) para IV US launches," said the brokerage.
"Sustained growth momentum and R&D commercialisation would drive FY22 P/E re-rating from 13x to 18x on our DCF-based target price," it added.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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