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Last Updated : May 04, 2018 12:34 PM IST | Source: Moneycontrol.com

Buy these 10 value picks on dips for returns up to 20% in 1 year

Some experts feel that the upcoming Karnataka elections will also play a crucial role in charting the market’s direction at least in the near-term. The recommend using any election-induced dips to buy quality stocks.

Kshitij Anand @kshanand

Kshitij Anand

The Sensex barely managed to climb above 35,000 last week. American investment bank Bank of America-Merrill Lynch (BofA-ML) says the index could well come under selling pressure and head towards 32,000 levels by December, a decline of over eight percent from its Thursday’s close.

“The target for the benchmark index does look scary especially when we are sitting comfortably above 35,000, but the deteriorating macro story could flip the market in the opposite direction.”

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After a bout of selling induced by Budget 2018-19 proposals, the market rallied almost 5 percent in April and closed at 35,103 on Thursday.

The global investment bank is of the view that macro will dominate in the near-term and sees downside risks to Indian equities. "Although the country's micro-economics are improving, macros are deteriorating. Higher oil prices will hurt deficits and political uncertainty will increase going into elections," it stated.

India has underperformed emerging markets by four percent year-to-date as macro concerns accumulate. “The upcoming election calendar will also cap upsides.”

Some experts feel that the upcoming Karnataka elections will also play a crucial role in charting the market’s direction at least in the near-term. The recommend using any election-induced dips to buy quality stocks.

Political heat is all set to rise ahead of Karnataka election as it will set the tone for a series of state elections (Rajasthan, MP, and Chhattisgarh )running up to the 2019 general elections. “These elections will continue to keep market participants on their toes. The BJP is set to make inroads into Karnataka, so any result against market expectation could see a sell-off. Hence investors should adopt a wait-and-watch policy,” DK Aggarwal, Chairman, and MD, SMC Investments & Advisors said.

Earlier this week, IL&FS' Vibhav Kapoor said the Nifty could touch 13,000 levels if the Bharatiya Janata Party manages to win the 2019 general elections. But if the election results don’t go as desired, then the 50-share index could fall to 9,000 levels, he told CNBC-TV18 in an interview.

We have collated a list of 10 value stocks that can offer up to 20% return in the next one year.

TCS: Buy| Target: Rs 3,900| Return 12%

TCS is a leading IT company and will benefit from weakening rupee and improving future outlook for the IT sector. TCS is cautiously optimistic regarding the outlook for FY19, with its key vertical of BFSI and Hi-Tech expected to make a strong recovery.

We expect TCS to grow its revenues at a CAGR of 9 percent and 10.5 percent in USD and INR terms respectively over FY17-19E. The stock is a buy with a target of Rs 3,900 based on PE of 20x FY20E.

HCL Technologies: Buy| Target: Rs 1,200| Return 29%

HCL Tech is India's fifth largest IT services company, with over 1,00,000 employees catering to more than 450 clients. The company has witnessed a strong traction for its digital services driven by Mode 2 and Mode 3 services coupled with a large number of IP partnership.

Going ahead, we expect the ER&D space to continue to witness a double-digit growth led by a major contribution from Geometric and Butler America. We recommend to buy the stock with a price target of Rs 1,200 based on PE of 18x FY20E.

Ujjivan Financial Services Ltd: Buy| Target: Rs 475| Return 12%

Ujjivan Financial Services Ltd is a microfinance company focused on providing finance to the unbanked rural population. It has emerged stronger after demonetisation which caused transient depression in the sector. We recommend to buy with a target price of Rs 475 based on 2.5x FY20E ABV.

Escorts: Buy| Target: Rs 1,150| Return 19%

Escorts Ltd is a leading manufacturer of tractors and will benefit from rising farm incomes. In FY17 tractor volumes grew by 24 percent and EBITDA margin expanded by 280 bps which led to almost doubling of net profit to Rs 160 crore.

We expect Escorts to continue delivering a robust performance, with 40 percent PAT CAGR over FY17-19E, mainly driven by revenue CAGR of 13 percent and EBITDA margin expansion of 300 bps. We recommend to buy with a price objective of Rs 1,150 based on PE ratio of 16x FY20E.

Godrej Agrovet: Buy| Target: Rs 800| Return 13%

Godrej Agrovet Ltd is a leading animal feed company in India. The large portion of this market is unorganized and hence presents a huge opportunity.

We expect company revenues to grow by 10 percent CAGR from Rs 4,911 crore currently to Rs 6536 crore by FY20E. We expect the company to post a net profit of Rs 450 crore in FY20E. The stock is a buy with a price target of Rs 800.

Analyst: D K Aggarwal, Chairman, and MD, SMC Investments and Advisors

Suprajit Engineering: Buy| Target: Rs 319| Return 15%

The company is the most preferred manufacturer of cables and meets the demand of virtually every major OEM in the automotive sector. It would more focus on cables in the export market for better positioning.

Steady demand from specific OEMs and the shoring up of control-cable growth in the auto and non-auto markets, exports and replacements would guide the further growth to the company.

According to the management, its profitability would improve in coming years as its capacity expansion and integration with the acquired companies is almost done.

Thus we expect the stock to see a price target of Rs 319 in the next 8 to 10 months timeframe on an expected P/E of 28x and FY19 (E) earnings of Rs 11.40.

Ambuja Cement Limited: Buy| Target: Rs 290| Return 20%

The company has a strong balance sheet and consistently reporting steady performance on quarter on quarter due to healthy sales.

The company expects with the government's continued focus towards infrastructure development, affordable housing, smart cities, concrete roads, and highways, coupled with remonetization and the structural reforms pursued by the Union Government in the form of GST, it is expected that the economy would return to a high growth trajectory.

With its continued operational excellence programs, combined with segmented marketing and value-added special cement products and building solutions, Ambuja Cement is well placed to benefit from economic growth trajectory.

Thus, it is expected that the stock will see a price target of Rs 290 in 8 to 10 months timeframe on current P/E of 24.99x and FY19 EPS of Rs 11.61.

Container Corporation of India Limited: Buy| Target: Rs 1,602| Return 18%

The Company is well poised to tap the new business opportunities arising from potential growth in EXIM container volumes.

In-depth knowledge of multi-modal logistics business, availability of a fairly large fleet of rolling stock, specialized container handling equipment, customized owned/leased containers and fully computerized commercial operations with internet-based customer and customs interface provide it a strong competitive advantage in availing opportunities for further growth.

Moreover, management of the company expects an increase in container traffic due to development of dedicated freight corridors. Thus, it is expected that the stock will see a price target of Rs 1,602 in 8 to 10 months timeframe on a target P/E of 34x and FY19 (E) EPS of Rs 47.11.

Muthoot Finance Limited: Buy| Target: Rs 513| Return 15%

The company is witnessing healthy financial growth across all business segments and maintaining the loan growth steady.

According to the management, on the gold loan front, it has grown by about 5 percent in the last 9 months and in coming quarters it would reach about 11-12 percent.

Thus, it is expected that the stock will see a price target of Rs 513 in 8 to 10 months timeframe on a current P/Bv of 2.23x and FY19 BVPS of Rs 230.20.

Mahindra Holidays Resorts India Limited: Buy| Target: Rs 356| Return 11%

The company has a healthy balance sheet and having an inventory of over 3,000 rooms with near zero debt at the parent level. The Indian travel and tourism industry is worth USD 116 billion and is estimated to grow at 7.5 percent annually to USD 250 billion by 2025.

Around 83 percent of spending is in domestic tourism and management expects good business transition in coming years. Thus, it is expected that the stock will see a price target of Rs 356 in 8 to 10 months timeframe on a current P/E of 26.79x and FY19 EPS of Rs 13.30.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their 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 May 4, 2018 08:46 am
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