The market always has stock opportunities whether it is a bull, bear or consolidative phase, say experts. It is for the investor to pick the right stock at the right time and the right price.
Ever since the government took a raft of measures, including a cut in the corporate tax rate, experts have turned more bullish, though the market seems to have already priced in expected earnings growth. The benchmark indices have rallied 13 percent since September 20, the day the corporate tax was lowered.
Most experts expect earnings and economic growth to pick up in the next financial year, though Q2 GDP pointed to a deepening slow down in the economy. The third quarter is unlikely to be better, considering the weakness across major sectors.
Experts do not see a major improvement in earnings this year and GDP growth could be well below 5 percent. They, however, do expect double-digit earnings growth next year, with around 6 percent growth in GDP though on a low base of last year.
"The disconnect between equity markets and economy could stay for some time as high-frequency indicators are not showing any signs of improvement, whereas markets could remain at elevated levels on hopes of certain sops likely to come in the forthcoming Union Budget," Kotak Securities MD & CEO Jaideep Hansraj said.
Better farm income, after a good monsoon, coupled with measures taken by the government and RBI could help improve demand in the calendar year 2020, say experts.
"The low base effect of this year could also help companies report decent revenue and operating profit growth in FY21. We expect Nifty 50 earnings to grow by 10 percent in FY20 and 27 percent in FY21. For the next three years, we are building in earnings CAGR of 18 percent for the Nifty 50 as compared to the previous three years CAGR of 8 percent," Hansraj added.
In December 2020, he expects the one year forward EPS of the Nifty to be around Rs 767, which valued at 17.5x gives a one-year target of 13,400 and a similar target for the Sensex will work to 45,500, he said.
Hence, experts expect that the rally, which restricted to a few stocks that lifted 13 percent return in short period, to broaden next year.
To benefit from this broad rally, brokerages pick these top 10 stocks that could give 14-121 percent return in the next 8-15 months.
Brokerage: Motilal Oswal
Siemens: Buy | Target: Rs 1,705 | Return: 16 percent
The recent weakness in new order inflows--down 14 percent YoY in 4QFY19-- has cast some doubt over an otherwise strong structural story. We attribute this to the likely decline in the end market of the auto industry, where Siemens has high exposure and slowing growth momentum in the F&B industry. Also, management let go of certain large-ticket size orders, especially in the mobility segment, on account of intense competition.
Our revenue forecasts adequately capture the recent weakness in the ordering environment. However, we remain positive on the medium- to long-term perspective, as we expect the company to be a key beneficiary of industry 4.0 and the recent cut in the corporate tax.
We maintain buy, with a target price of Rs 1,705 to the stock based on a target P/E multiple of 38x on Sep’21E EPS. We forecast earnings CAGR of 19.4 percent over FY19-22.
ABB: Buy | Target: Rs 1,660 | Return: 15 percent
ABB’s stock has rallied just 10 percent YTD v/s 40 percent for Siemens and 13 percent for the Nifty. We attribute this underperformance to the pending demerger of the Power Grid business (likely by June 2020.
ABB, along with Siemens, is one of the biggest beneficiaries of the corporate tax cut and also the likely beneficiary of the boost to the manufacturing sector in India.
Exports, as a percentage of revenue, stand at around 15 percent and have grown 91 percent in 9MCY19 (CY18: 31 percent). We continue valuing its discontinued T&D business at a target multiple of 25x and current core
business at 45x. However, we roll over our target price to Sep’21E EPS from Mar’21E. Thus, our target price increases to Rs 1,660. We upgrade ABB to buy from neutral.
Brokerage: PhillipCapital
Camlin Fine Sciences: Buy | Target: Rs 140 | Return: 121 percent
We expect CFIN to deliver rapid value growth led by Dahej plant commissioning, ramp-up in blends business, improvement in Chinese vanillin plant utilisation and continued growth momentum in performance chemicals.
We estimate CFIN’s sales/EBITDA to grow rapidly at a CAGR of 22 percent/60 percent over FY19-22. However, due to the weak operational performance in the recent past, CFIN trades at deep discounts (ie 4x FY21 EV/EBITDA and 7x FY21 PE). We recommend buy with target of Rs 140 ie 9x FY21 EV/EBITDA.
Brokerage: Prabhudas Lilladher
INOX Leisure: Buy | Target: Rs 416 | Return: 14 percent
In a chat with analysts at recently renovated INOX megaplex in Mumbai, Director Siddharth Jain talked about how the strategy to penetrate metro and Tier-1 markets with constrained aggression helped in improving ATP/SPH/ad revenue per screen. To widen the reach in the north, a lot of screens have been signed in Gurgaon and Noida. However, Delhi continues to be a challenge, given the scarcity of new malls. In all, the target of adding 70 screens for FY20E remains intact. A new loyalty program was also unveiled with a clear focus on premiumisation (premium screens constitute around 9 percent of screen mix).
The emphasis is on improving margins by increasing the share of non-ticketing revenue (41 percent of sales mix in 2QFY20) while keeping the pricing (ATP) affordable. We believe INOX's premiumisation approach and strategy to focus on metro and Tier-1 markets is yielding rich dividends. Negligible debt and strong screen pipeline visibility around 900 new screens are in fray backed by signed agreements) gives additional comfort. We thus maintain a buy rating, with a target price of Rs 416, valuing the stock at an EV/EBITDA multiple of 8.7x on FY21 Ind-AS compliant earnings.
Brokerage: Sharekhan
Godrej Consumer Products: Buy | Target: Rs 865 | Return: 60 percent
Increased temperature and excessive rains have led to a rise in dengue cases in India, which, along with the receding threat of illegal incense sticks, will help the household insecticides (HI) category post good growth in Q3FY2020 as against Q2 and Q1.
Volume growth in the soaps category is likely to sustain, driven by consumer offers. International business is expected to perform well, driven by good growth in Indonesia, whereas margin expansion is expected to sustain in Africa due to cost-saving programmes.
The current valuation of 33.6x FY2021 earnings and 28.7x FY2022 earnings is reasonable compared with sector P/E. Hence, we maintain a buy recommendation on the stock, with an unchanged price target of Rs 865.
Brokerage: Anand Rathi
Dr Lal Path Labs: Buy | Target: Rs 1,999 | Return: 20 percent
The company has very strong and continuously improving financials, with its revenue, EBITDA & PAT growth at a CAGR of 16 percent, 18 percent, and 20 percent, respectively, over the last five years.
The company has a very healthy balance sheet and has maintained very high return ratios in an industry which is effectively loss-making because of its fragmented nature.
The diagnostics industry remains largely unorganised with standalone centres and hospital based centres contributing to 48 percent and 37 percent of the entire market. This gives tremendous opportunities for large chains like DLPL to grow on the basis of geography.
Given the company’s impressive performance, favourable industry traits, growth opportunities and differentiated business model, we believe that the it is well positioned for long-term growth and we initiate coverage on the company, with a buy rating at CMP of Rs 1,665/share, the stock is trading at a P/E multiple of 43.4x to its FY21E EPS. We have a target price of Rs 1,999/share.
Ashoka Buildcon: Buy | Target: Rs 185 | Return: 95 percent
Though softened from Q1, Ashoka’s Q2 growth was still good, coming in the backdrop of heavy monsoon. With the rains now past, and as work gets going at the two recently appointed hybrid annuity and the recent additions, growth ahead is expected to be healthy. The balance sheet, too, is in shape to ensure growth doesn’t falter for want of funds. Inflows could have been better; the expected year-end spurt in awarding should help.
In the built operate and transfer toll segment, the monsoon added to constrained economic activity, and to a project-specific issue.
On the stronger-than-expected margins and shift to the new tax regime, our FY20e PAT has been raised around 64 percent (and around 33 percent for FY21) due to the low base (owing to losses in the SPVs). On the revised estimates, the stock (excluding investments) trades at PER of 7x FY20e and 6x FY21e, against a target price-implied exit multiple of 12x FY21e.
Brokerage: SMC Global
Petronet LNG: Buy | Target: Rs 306 | Return: 14 percent
The company is well placed to benefit from rising gas demand, supported by its recent capacity expansion to 17.5 mmt at the Dahej terminal and plans to further expand capacity to 19.5 mmt in the next two-three years by setting up two storage tanks and a jetty. It is thus expected that the stock will see a price target of Rs 306 in eight-10 months timeframe on an current PE multiple of 14.59 times and FY21E EPS of Rs 20.99.
Canara Bank: Buy | Target: Rs 253 | Return: 21 percent
The bank has been consistently delivering on improving asset quality, cost efficiency, other income and productivity. The management is confident of improvement in incremental disbursement with better credit monitoring.
It is expected that the stock will see a price target of Rs 253 in 8 to 10 months timeframe on a target P/Bv of 0.70x and FY21 BVPS of Rs.361.07.
Brokerage: Emkay
GHCL: Buy | Target: Rs 293 | Return: 48 percent
The prices of soda ash–the core product of GHCL – remained lower in November and are at $17.1/50kg (Mumbai spot) due to the oversupply. However, the drop in the prices of coal, which accounts for around 30 percent of the total cost, should mitigate the impact of lower soda ash prices. We expect margins to remain stable. Soda ash prices touched one-year low in November, down 8 percent YoY.
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