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Brokerages initiate coverage with a buy on these 15 stocks, expect 19-45% return

Gaurav Dua of Sharekhan expects double-digit returns in CY2021 through with some hurdles in the journey.

December 23, 2020 / 02:04 PM IST
 
 
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The news of discovery of a new strain of coronavirus in UK rattled the market on December 21, but the market gained ground on December 22. Experts say the fall is a part and parcel of bull rally and that these kind of falls generally make market stronger.

We saw correction in September also, but since then the market has shot up again. Experts suggest investors to continue to with add on dips strategy.

The BSE Sensex and Nifty50 have gained more than 12 percent each this year so far, and have rallied around 80 percent each from March 23 low. The broader markets also traded in line with benchmarks with positive breadth.

The vaccine progress, supportive monetary policy with lower interest rates and consistent large FII inflow also continued to act as major supportive factors for the market.

"Year 2021 is set to begin on a positive note with the equity market soaring to a new high. The market rally is fuelled by a strong economic recovery, supportive monetary policy, and easing of active COVID cases," Gaurav Dua, SVP – Head Capital Market Strategy & Investments at Sharekhan by BNP Paribas told Moneycontrol.

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In the near term, "hopes are pinned on a rise in government expenditure, an improving trend in Q3 earnings, and a growth-oriented Union Budget. The rollout of vaccines and further doses of stimulus in the major economies globally are supportive factors," he added.

Moneycontrol collated a list of 15 stocks where brokerages initiated buy coverage in last one month:

Burger King India

"We believe that Burger King India has a well-defined store expansion strategy which gives better revenue visibility in long term. Favourable demographics, change in customer preference, surge in online ordering are expected to boost prospects of QSR industry. Furthermore, strong customer value proposition, professional management team, pan India presence, efficient supply chain is likely to augur well for the company. As the parent company has delivered in multiple countries, we believe that growth in domestic market would not be a challenge, going ahead," said Dolat Capital which initiated coverage on BKIL and valued the stock on DCF to arrive at a target of Rs 212.

Equitas Small Finance Bank

JM Financial initiated coverage on Equitas Small Finance Bank with a buy rating and a target price of Rs 51.

"Since its transition into a mass market focused SFB, Equitas has successfully been able to diversify its loan portfolio and significantly reduce dependence on the microfinance business. Thus, owing to its diversified asset base, it is relatively safe from acute asset quality shocks in a particular asset class. Equitas’ liability engine, after losing traction post initial success, is now revving up with continued retail deposit accretion (65 percent of deposit mix)," said the brokerage.

With most investments to set up liability branches, adopt technology and hire personnel completed in the past few years and no near-term branch capex plans, the brokerage believes that Equitas has substantial operating leverage to support a 34 percent EPS CAGR over FY20-23 with ROA recovering to 2.1 percent by FY22.

Security and Intelligence Services

Security and Intelligence Services is among the largest business services providers in India, with leadership across security services, facilities management, and cash logistics. Companies' core businesses offer both high growth due to low formalization and high fragmentation and resilience to macro cycles on account of their essential nature.

"Over FY17-20 growth in operations has been a function of (i) 30 percent growth in the India Security business, (ii) 16 percent growth in the International business, and (iii) 48 percent growth in FMS. We expect a 14 percent/18 percent/28 percent CAGR in revenue/EBITDA/PAT over FY21-23, driven by a) an increase in formalization, b) the further opening up of the economy, c) market consolidation, and d) SECIS' strong execution," said Motilal Oswal.

Laurus Labs

"Management indicated that growth is volume driven as all its facilities are running at optimum utilization. They also guided that there is no one off or bunched up sales in Q2 and the growth momentum will remain sustainable in the 2HFY21. Based on growth visibility in Formulations as well as in the API segment, we are confident of sustaining the momentum in earnings," said Anand Rathi.

The brokerage also believes that the company is well positioned for continued long term growth and initiate coverage on Laurus Labs with a buy rating and a target price of Rs 424 per share.

Gujarat State Petronet

Sharekhan initiated coverage on GSPL with a buy and target of Rs 300, given strong volume growth tailwinds led by revival in gas demand from power, fertiliser and CGD projects.

"Gas demand outlook stays robust as regulatory push & unified tariffs would increase gas penetration; gas transmission volume/PAT to clock 8 percent/13 percent CAGR over FY21-FY23. CGD arm Gujarat Gas (GGAS) to add value in long run backed by robust earnings outlook given high exposure to industrial PNG; GGAS’ volumes have recovered above pre-COVID levels," said the brokerage.

ICICI Securities

KR Choksey initiated coverage on the ISEC with a long term positive view at a premium assigning P/E multiple of 23.0x to arrive at a target price of Rs 565 per share.

"ISEC continues to manage its costs efficiently, resulting in strong operating leverage and adequate free cash flow generation. We expect 11.1 percent and 14.8 percent of revenue and earnings growth in FY20-23E, respectively backed by operational efficiency. Consistent dividend payout ensures healthy shareholder returns. Asset light business model, strong brand, and leading market share makes a good investment case," said the brokerage.

Healthcare Global Enterprises

"Healthcare Global Enterprises operates one of the largest private sector cancer treatment centres in India with 22 cancer centres. HCG has a 50 percent stake in Milann, one of India’s leading providers of fertility treatment. In India, cancer treatment is an under-penetrated medical service where there are large gaps in both the diagnosis and treatment of the disease. Over the last 5 years, HCG’s number of cancer centres have expand-ed from 17 to 22," said Geojit Financial Services.

"The recent capital infusion will enable HCG de-leverage its balance sheet and focus on improving overall profitability," the brokerage added.

Orient Electric

Arihant Capital Markets initiated coverage on OEL with a buy rating and target of Rs 269 (based on 48x PE to its FY23E). The brokerage believes over the next 2-3 years, OEL’s business performance will improve further driven by; a) company’s increasing focus towards premium category, b) increasing share of LED business and c) better product mix in appliances and switchgear segment.

CESC

"We find CESC inexpensive at 5x FY22E P/E with potentially steady earnings growth on a) declining losses in Dhariwal led by ST PPA and merchant sales, b) steady growth in regulated profitability with limited earnings risk (around 95 percent of FY20 PAT) and c) moderating losses at franchises," said JM Financial which has base case target of Rs 792.

"While even in bear case, we find the implied P/E at 6.8x FY22E P/E which assumes no off-take from Dhariwal U-1, continued losses at franchisees and a regulatory hit in Kolkata operations. We re-initiate coverage with a buy rating," said the brokerage.

Sudarshan Chemical Industries

"Backed by a strong capex program (around Rs 580 crore over FY20-22) the company is well placed to seize opportunities on a global landscape. Introduction of new high performance pigments is likely to be margin/RoCE accretive and will garner superior asset turns (around 3.0x on capex earmarked for growth capex around Rs 400 crore). We thus believe that RoCE's are set to improve by 100 bps from FY20 to FY23 to 17.2 percent as assets begin sweating," said Dolat Capital.

The brokerage likes Sudarshan Chemical focused approach on the Pigments business, prudent capital allocation in a much commoditised business, global presence, strong SHE practices and growth opportunities cropping up from consolidation in the global pigments arena.

Cholamandalam Investment and Finance Company

Sharekhan initiated coverage with a buy rating and target of Rs 430, as CIFC is a well-run vehicle financier with attractive return ratios, steady NIMs and strong operating metrics.

"Improving asset quality outlook, as reflected in better collection efficiency, is encouraging; management expects less than 5 percent of portfolio to be restructured, which is positive. Diversified products, renowned parentage, strong underwriting record and ample liquidity make CIFC among the best players in vehicle financing space," said the brokerage.

Advanced Enzyme Technologies

ICICI Direct initiated coverage on Advanced Enzyme Technologies (AET) to capture opportunities in this integrated B2B enzymes player with plans to expand into B2C for areas like neutraceuticals and probiotics.

"AET is poised to capture the growing opportunities in the enzymes and probiotics space backed by proven capabilities and stable financials that have been fairly consistent, thanks to a mix of organic and inorganic growth strategy employed by the management. Strong margins and healthy return ratios reflect the pricing power and balance sheet strength of the company," said the brokerage.

Going ahead, the management intends to augment its R&D capability for better facilitation and strengthening of in-house R&D capability, which bodes well in the long run in its quest to improve scalability and a possible foray into more complex enzymes, the brokerage added.

Jindal Stainless and Jindal Stainless Hisar

Over the last few decades, "stainless steel has emerged as a metal of choice due to its diverse applications. Stainless steel (SS) is used in architecture, building and construction (ABC segment), automobiles, railways, transport (ART segment), process industries, etc. SS, due to its distinct characteristics, has an edge over carbon steel. SS provides a good combination of strength, pliability, has a longer average product lifecycle and a relatively low/nil maintenance cost compared to carbon steel. The edge of stainless steel over carbon steel is clearly visible in terms of difference in demand growth rate of both metals," said ICICI Direct.

JSL group (Jindal Stainless + Jindal Stainless Hisar) has a leadership position in the Indian SS sector cumulatively accounting for around 50 percent share in overall SS demand. "Considering healthy demand prospects from key user industries coupled with support from government (recently levied provisional CVD against subsidised imports from Indonesia), we expect good times ahead for the domestic SS sector," said the brokerage which initiated coverage with a buy rating on two leading players - Jindal Stainless and Jindal Stainless Hisar.

Max Healthcare Institute

Global brokerage house Jefferies initiated coverage with Buy rating for Max Healthcare and target of Rs 160 as it expects FY22 to be a recovery year for India Healthcare.

"Large hospital chains will focus on case-mix & cost savings will drive EBITDA Growth. We expect FY20-23 EBITDA growth at 24 percent for Max Healthcare," said the brokerage.

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.
Sunil Shankar Matkar
first published: Dec 23, 2020 02:04 pm

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