Despite challenging Q4 earnings, these 5 stocks may give 13-34% return

The bank delivered twice growth in Net profit at Rs 381.51 crore during the quarter led by significant improvement in the asset quality. Provisions and contingencies fell by 52.15 percent to Rs 177.76 crore.

Sharp drop in slippages helped shrink GNPA & NNPA to 2.92 percent and 1.48 percent respectively. On the recovery front, bank has performed well as coverage ratio increased to 70 percent. While, CAR increased to 14.1 percent from 12 percent on sequential basis, which is quite decent stating bank having adequate capital to fund its future projects.

As guided by the management earlier, ROA and credit cost has hit target at 1 percent and 0.68 percent for the year. Further guidance note stated to brush up ROA by 10-12bps each year for next couple of years. Also, focus on equal weightage for both its Retail & Wholesale business to 50:50 from 47:53 is not far off. This would help lower RWA for the bank, as already seen in the Q4 numbers. We value Federal bank at P/BV multiple. Taking P/BV at 1.3x for FY20Est., the stated target is expected to be Rs 130 in medium term.

LIC Housing Finance: Buy | Cmp: Rs 473 | Target: Rs 535 | Return: 13%

LIC Housing posted quite good set of numbers during Q4FY19. Revenue grew by 20 percent at Rs 4655 crore with 17 percent increase in PAT at Rs 693.58 crore. Thereby, the resultant EPS raised at Rs 48.16.

However, noteworthy points which differ LIC housing amongst other HFC’s are- One, Retail Loan book composition (including LAP) is at 93 percent, reducing the risk by developer loans. Second, loan to value Ratio is at 46 percent, which is quite low. And lastly, 93 percent of the loans are based on pure floating rates; this helps NIM’s grow 2.54 percent from 2.34 percent sequentially.

Above all, on expectations of healthy growth through tier2 & tier3 cities, management guided to grow its disbursements by over 15 percent during FY20 and to raise Rs 20000 crore in the next couple of months. Moreover, to boost liquidity might purchase portfolios. Taking into perspective Specific focus on affordable housing, company expects to open up 9 new marketing centres. At 1.4x P/BV for FY20, we value stock at Rs 535 in medium term.

CDSL: Buy | Cmp: Rs 226 | Target: Rs 276 | Return: Rs 22%

CDSL has reported a revenue growth of 10.4 percent (Q-o-Q) as against a marginal growth of 1.21 percent on Y-o-Y basis and PAT grew by 32 percent at Rs 34.19 crore. Increase in number of folios, dividend income and interest income from investments in financial assets led to considerable spike in other income, which is expected to remain so for long. In addition, around 1400 unlisted companies been enlisted with CDSL which gave Rs 3 crore as incremental issuer charges during Q4 FY19.

By reaching BO accounts to Rs 1.73 crores it enjoys 63 percent incremental market share during the year. Hereafter, CDSL is eyeing on adding 200- 250 new unlisted companies every month, which translates to a revenue of approx. Rs 1.013 crore per quarter (Rs 15000 annual charges) as one-time fees and Rs 0.34 croreper quarter as recurring revenue.

It is a cash rich company & invests mainly in AAA rated portfolios, having lower/no risk cases. Company’s revenue depends on increase in BO accounts with good market conditions. Investors looking for long term returns and having significant risk appetite may BUY the stock with a target price of Rs 276.

Reliance Industries: Buy | Cmp: Rs 1246 | Target: Rs 1560 | Return: 25%

RIL's overall turnover grew 44.6 percent led by significant boost from consumer businesses & higher oil price realizations. We expect Retail & Digital business to be the next leg of growth in RIL. Talking of retail business, revenue growth was strong by 52 percent and EBITDA surged 77 percent mainly attributable to store expansion- covering under penetrated organized retail areas and consumer traction. It added 510 retail stores for the quarter aggregating to 2,829 for FY19, thus crossed a milestone of 10K stores across India and registered over 500 million footfalls in FY19, growth of 44 percent Y-o-Y.

Moreover, consumer business contribution to EBITDA has surged 24.6 percent, a twofold jump since 2015. Thus, through expanding the retail segment space, having greater operating margins, RIL is increasing its shift in the overall pie.

Digital business revenue grew 10.6 percent driven by strong subscriber base at 306.7 million. EBITDA margins stood at Rs 43.3 bn. Thus, robust subscriber addition at 33 mn, increase penetration of Smartphone users (especially in rural areas) with attractive offerings would help gain market share across circles and increase ARPU going forward. We value RIL by SOTP basis at a price target of Rs 1560.

ESAB India: Buy | Cmp: Rs 910 | Target: Rs 1100 | Return 21%

With ability to produce consistent positive cash flows, stable profitability, mingled with healthy asset turnover ratio, huge cash & investments balance enables it to price competitively to gain market share going forward. Therefore, the company has plenty of headroom to grow. ESAB India also provides its support service abroad. Looking ahead now focuses on growing service segment to cushion the impact of any sustainable difficulties in the manufacturing segment.

On profitability front, Q4 FY19 earnings have witnessed a 78 percent Y-O-Y growth on the back of 18.12 percent revenue growth supported by an EBITDA growth of 87.67 percent. Revenue growth is mainly due to improved volumes from domestic front. However, high raw material cost was offset by lower advertisement and other expenses.

Thus, EBITDA margin expanded to 14.47 percent in Q4 FY 19 compared to 9.11 percent in Q4 FY 18. As per P/E multiple, we recommend to BUY at a price target of Rs.1100.