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Last Updated : Jan 07, 2020 12:45 PM IST | Source: Moneycontrol.com

Cherry-picking in times of volatility: Brokerages bet on 10 stocks for 16-35% returns

Rusmik Oza said a 5-6 percent correction from the peak levels could be a healthy one for the long-term market sentiment.

Sunil Shankar Matkar
 
 
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After taking a knock in lat two consecutive sessions, the market recovered in early trade. Nifty50 rallied more than 100 points on January 7 morning recovering almost 50 percent of 233-point fall witnessed on January 6 that pushed the index below 12,000.

The S&P BSE Sensex also witnessed a bounce-back of more than 400 points.

The Sensex had fell nearly 1,000 points in two consecutive sessions as oil prices rallied sharply after US President Donald Trump issued a threat to impose sanctions on Iraq amid escalating tensions with Iran in the Middle East.

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On Monday itself, the BSE Sensex plunged 787.98 points (the biggest single-day fall in nearly a year) or 1.90 percent to 40,676.63. The Nifty50 has broken its crucial support and psychological 12,000 mark, falling 233.70 points or 1.91 percent to 11,993 amid broad-based selling.

India Volatility index, which was hovering around 10-12 levels few days back, also surged over 16 percent, indicating some concerns over further buying interest.

"Indian market is reacting more negatively than other emerging markets due to crude oil impact. Since our dependence, crude imports as a percentage of consumption is the highest, the impact on economy and markets is also higher. Along with crude, the negative impact of currency is also weighing on Indian markets. The geopolitical tension has increased the risk of unknowns which is getting factored into the market," Rusmik Oza, Senior VP (Head of Fundamental Research-PCG), Kotak Securities told Moneycontrol.

But every expert feels that any fall like this can always be used as a buying opportunity for long term, in fact it is the time for cherry picking, as fundamentally, India and corporate earnings would be strong in coming years after the government's measures to revive economy.

"A 5-6 percent correction from the peak levels could be a healthy one for long-term market sentiment," Rusmik Oza said.

Moneyontrol collated a list of 10 stocks that could give double-digit returns in 2020. Returns are calculated based on the closing price of January 6:

Brokerage: Edelweiss

Adani Ports: Buy | Target: Rs 450 | Return: 18.4 percent

Extending its acquisition spree, Adani Ports and SEZ’s (APSEZ) acquired 75 percent stake in Krishnapatnam Port (KPCL) in an all-cash deal of Rs 5,500 crore (EV of Rs 13,500 crore).

The KPCL acquisition will add 5 percent market share to APSEZ’s (22 percent) all-India cargo volumes. It is likely to fill a key gap in the company’s portfolio due to its distinct hinterland, which is currently not serviced by it. Our calculation indicates that at Rs 5,500 crore equity valuation, the deal is value accretive by Rs 23 per share from long-term perspective. We maintain buy with target of Rs 450.

Brokerage: Antique Stock Broking

Phoenix Mills: Buy | Target: Rs 1,000 | Return: 16 percent

We remain positive on consumption and commensurate rental growth in its existing malls, generating robust free cashflow to fund growth. The company is a on a high growth path - addition of around 1 million square feet of retail space each year till FY23; significant jump in rental revenue from these under-construction assets once they become operational. We recommend buy with a target price of Rs 1,000 based on the SOTP of its assets.

Sobha: Buy | Target: Rs 540 | Return: 35 percent

With record sales volume in FY19 and 1HFY20, and steady Bengaluru residential market, the momentum is expected to continue. With its strong execution capabilities and robust pre-sales trend in a consolidating market, we find the stock attractive at its current valuation. We recommend buy with a target price of Rs 540 based on the SOTP of its assets.

Oberoi Realty: Buy | Target: Rs 630 | Return: 22.33 percent

We believe company is poised for strong growth in volume once Thane/ Goregaon projects are launched. Annuity portfolio set to become bigger with substantial progress in under-construction annuity assets (in Borivali and Worli) and commencement of construction in Commerz III. We maintain positive stance on the stock and recommend buy with target price of Rs 630.

KNR Constructions: Buy | Target: Rs 336 | Return: 32.3 percent

KNRC, with existing capacity can execute Rs 3,000 crore+ in revenue. However, with delay in obtaining appointed dates, company aims to execute Rs 2,300 crore in FY20. Including 3 HAM projects, KNRC has an order backlog of Rs 5,900 crore. To this, company will add Rs 2,500 crore of order inflow: (a) 2*Rs 800 crore irrigation project; and (b) Rs 900 crore HAM/EPC road project.

Company maintains its conservative 15 percent EBITDA margin guidance, while they clock 20 percent. In addition to 3 assets in forward transaction with Cube highways, KNRC anticipates Kerala BOT asset on block. Further, KNRC has plans to sell Bihar project too.

One could argue that the order book, inclusive of the newly won orders, is around Rs 6,600 crore, which translates into 3x TTM book-bills. Given the delay in appointed dates, we anticipate an 8 percent CAGR in revenue until FY21. With relatively lower EBITDA margin, we anticipate flat EBITDA in the next two years. With limited interest outgo and full taxes, we anticipate 5 percent CAGR in earnings. With a target price of Rs 336, based on 15x FY21 EPC earnings and assets at fair value, we maintain buy.

RITES: Buy | Target: Rs 387 | Return: 29 percent

Rail India Technical and Economic Service (RITES), today, has emerged has the state-owned enterprise engaged in consultancy and engineering across infrastructure vertical. Using nominated orders from the ministry of rails, over the past nine years, the Gurugram-based company has grown steadily with revenue/net profit CAGR of 10/15 percent per annum. At the end of FY19, the company has a net worth of Rs 2,300 crore, with cash/cash equivalents of Rs 3,400 crore (which includes non-interest earning cash from clients). Thereby, headline return ratios do not reflect the true potential of this asset-light business. With Government’s focus on $5 trillion economy, RITES stands as a proxy for railway/metro/road capex.

We remain cautious on the penetration rate for incremental consultancy orders. We build in higher revenue growth at lower margin. Thereby, we forecast 15 percent CAGR in revenue till FY21. While factoring in 10ppt/1 ppt erosion in PMC/project operating margin, we anticipate by 7/13 perent CAGR in EBITDA/net profit till FY21. We ascribe a PE-multiple of 13x for FY21 standalone PAT (multiple similar to ENGR IN Equity) and 10x for energy management vertical. With a target price of Rs 387, we maintain buy.

Brokerage: SMC Global

Ajanta Pharma: Buy | Target: Rs 1,265 | Return: 29.8 percent

The company is financially stable and well-diversified model with branded generics in India, Asia and Africa, generics in USA and institutional business in Africa, comprising a wide range of products, in more than 30 countries. Its India business continued to perform well steered by strong focus on high growth speciality segments. The company continues to strengthen product portfolio through new launches, many of them being first-to-market products, offering significant patient benefits.

Apart from new launches, many of the company's existing products continue to grow their market share. Thus, it is expected that the stock will see a price target of Rs 1,265 in 8 to 10 months time frame on current P/Ex of 22.05x and FY21 earnings of Rs 57.36.

Brokerage: Anand Rathi

Varun Beverages: Buy | Target: Rs 862 | Return: 22.86 percent

Varun Beverages is a key player in the beverage industry. VBL accounts for more than 80 percent of Pepsi Co's beverage sales volume in India.

As part of growth strategy, the company remains focused of product mix diversification, distribution expansion particularly in rural and semi-urban areas, cost reduction and technology leverage to improve overall efficiency. Regarding macro scenario, the domestic soft drinks industry has significant upside. Per capita consumption of soft drinks in India is much lower, compared to matured markets like US, Mexico and Germany, which provides room for substantial growth. Further, several factors including growing middle class, rising affordability and urbanization is likely to drive demand for beverages in India.

Positioned for continued growth and initiate coverage on Varun Beverages with a buy rating and a target price of Rs 862 per share.

Deepak Nitrite: Buy | Target: Rs 496 | Return: 34.89 percent

With the latest results (Q2FY20) reflecting positive outcome of company’s increased focus on adding high value products and moving higher in the value chain to improve its profitability in long term bodes well for its base business which should continue to show improvement in margins.

The company's new Greenfield expansion plan at Dahej, Gujarat for manufacturing phenol (2,00,000 ton/year) and acetone (1,20,000T/year) has demonstrated successful operations and is currently operating at over 90 percent utilization levels.

The company is also incurring capex on development of downstream products for Acetone and same is expected to be commissioned towards the end of this financial year. All these should result in more sustained and profitable growth for the Company. We expect phenolic business to show improved profitability and any expected decline in temporary higher DASDA prices should offset the bottom line and also company’s forward integration in form of Acetone derivatives opens up new value addition prospects for the company.

Relaxo Footwears: Buy | Target: Rs 744 | Return: 18.8 percent

The company has effectively increased its reach in rural India and has gained traction in –urban India especially in the “home wear and leisure” segment. A significant proportion of its revenues comes from the north and east. It has a forayed into the south and west that is seeing good growth.

India is still an under penetrated footwear market with a per capita consumption of approximately around 1.7 pairs per annum against a global average of 3 pairs per annum. Developed countries average 6-7 pairs p.a. Incremental growth will come from deeper penetration of organised footwear in tier II and III cities.

The share of the organised segment is approximately 45 percent and it’s well positioned to benefit from introducing GST and an increase in aspirational spend as the price differential between the unorganised and the organised space closes in. With deep penetration and excellent brand recall, Relaxo has established itself in both, rural and urban India. We believe Relaxo will be the best performer in the listed footwear space.

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 Jan 7, 2020 12:25 pm
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