If you are planning to deploy cash now, wait for some more time as the market will give you ample opportunities to enter at lower valuations, suggest experts.
Nifty hit a fresh record high of 11,856 just last week but failed to hold on to the momentum. The volatility will only pick up as we move closer to the election outcome.
If we look at the rally it is largely in few stocks which are taking the index higher while the small & midcaps continue to struggle which is not a good sign for the bulls.
“Markets during the week traded largely sideways with an upward bias although Nifty went up during the week; but the small and mid-cap indices were still languishing indicating that the market is in no hurry to set a decisive path for themselves yet,” Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote said.
“Open interest is consistently reducing in the futures market given the already elevated levels and the uncertainty on the election outcome. Status quo is expected to be maintained going forward. Therefore, markets are expected to move either 2-3% up or down from the current levels,” he said.
Modi further added that investors must not rush to buy in this indecisive phase and go shopping only after the election results, scheduled to be announced on May 23.
As we inch closer to the election results day (May 23), the Street is factoring in Narendra Modi-led Bharatiya Janata Party's (BJP) win but with a reduced majority as the base case scenario, said CLSA's Chief Strategist Christopher Wood in his weekly note 'GREED and fear'.
Here is a list of 10 stocks where brokerages initiated coverage for the first time that could give 20-40% return in the next 12 months:
Mastek: Buy| LTP: Rs 481| Target: Rs 623| Upside 30%
Stewart & Mackertich initiated coverage on Mastek with a target of R 623. It is a global technology company, founded in 1982, delivering enterprise level digital transformation services and solutions for large public and private enterprises in the UK, US and India.
Mastek, with its proven capabilities in delivering large and complex enterprise-wide transformation projects, is well-placed to successfully partner businesses from end-to-end in their transformational journeys.
The company is expected to post a strong performance in FY20E and FY21E led by healthy order pipeline, continued growth in the UK region and strong traction from the public sector. The derived intrinsic value and target price of Mastek is Rs 623 per share.
Lemon Tree: Buy| LTP: Rs 73.90| Target: Rs 90| Upside 21%
Motilal Oswal initiated coverage on Lemon Tree with a buy rating and a target price of Rs 90. Lemon Tree Hotels is the largest hotel chain operator in the mid-priced hotel segment in India.
Motilal Oswal believes that Lemon Tree is well placed to capitalize on the impending opportunity in the domestic hospitality industry and the expected upcycle due to (a) its strong presence in the mid-priced hotel segment, (b) line-up of hotel launches in high demand and high ARR markets, and (c) an increase in the number of rooms through management contracts.
The domestic brokerage firm expects Lemon Tree to deliver revenue/EBITDA CAGR of 29%/ 45% over FY18-21 to Rs 10.4b and Rs 4.1 bn respectively and expect RoE to improve to 14.8 percent by FY21 from 1.8 percent in FY18.
Cera Sanitaryware: Buy| LTP: Rs 2851| Target: Rs 3471| Upside 21%
IDBI Capital initiated coverage on Cera Sanitaryware with an outperform rating and a target price of Rs 3471. Cera is a leading bathroom solutions provider in India and is amongst the top 3 players of the organized sanitary ware market, with a market share of 15 percent.
It also has interest in allied businesses like faucets (3% market share), tiles and wellness products. The brokerage firm estimates Net Sales/EBITDA/PAT to grow at a CAGR of 14%/17.7%/18.6% over FY18-21E.
Cera’s balanced products folio at a varied price point, robust distribution, focus on creating brand awareness in tier 2/3 cities and well-spread geographical sales distinguish it from its peers.
Kajaria Ceramics: Buy| LTP: Rs 600 | Target: Rs 759| Upside 26%
IDBI Capital initiated coverage on Kajaria Ceramics with a buy rating and a target price of Rs 759. Kajaria with a capacity of 68 mn sqm, it is the largest player of domestic tile industry and 9th largest tile manufacturer globally.
The company offers 2,800 SKUs in ceramic tile/PVT/GVT and 250 SKUs in sanitaryware and faucet segment. The brokerage firm expects the company to clock Net Sales/EBITDA/PAT CAGR of 11.5%/13.2%/16.7% over FY18-21E.
The company has increased its focus on increasing share of value added products in total sales, extensive distribution reach and strong brand recall created through advertising and marketing initiatives, foray into allied business segments with minimal capital investments and strong clientele base form the basis of our investment arguments.
Somany Ceramics: Buy| LTP: Rs 406| Target: Rs 576| Upside 41%
IDBI Capital initiated coverage on Somany Ceramics with a buy rating and a target price of Rs 576. It is one of the largest players of the domestic tile industry with a capacity of 63mn sqm (includes owned, JV/Associate and outsourced capacity).
The company is present across ceramic, PVT, GVT and has also forayed into sanitary ware (FY10) and Faucet ware (FY11).
The management’s thrust on increasing share of value added products in total sales has been instrumental behind healthy sales growth over the years.
IDBI Capital forecasts Net Sales/EBITDA/PAT CAGR of 8.9%/6.5%/10.6% over FY18-21E. It has a well-spread dealership network, focus on branding and marketing and creating a niche position and brand recall for ‘SOMANY’ and increasing number of showrooms to give touch and feel experience to the clients have formed the strong foundation for the company’s future growth.
Amber Enterprises: Buy| LTP: Rs 809| Target: Rs 1050| Upside 29%
Edelweiss Professional Investor research in a note initiated coverage on Amber Enterprises with a buy rating and a target of Rs 1050. It is the largest contract manufacturer of residential air conditioners (RAC) in India, with 55 percent market share.
Its RAC & RAC component revenue has grown 2x industry leader Voltas during FY13-18 primarily due to increased wallet share from existing customers and addition of new customers.
The company enjoys a stable operating margin (8-10%) and return ratios (15-18%) and has a strong balance sheet with projected net debt/EBITDA at 0.61x in FY19.
Edelweiss estimate Amber’s revenue and operating profit to clock 19 percent and 24 percent, CAGR, respectively, during FY19-21 led by improved demand for RAC and full contribution of newly acquired entities.
Indostar Capital Finance: Buy| LTP: Rs 399| Target: Rs 525| Upside 31%
Motilal Oswal initiated coverage on Indostar Capital Finance with a buy rating and target price of Rs 525. IndoStar Capital Finance (INDOSTAR) commenced operations in 2011 with a significant capital commitment (Rs 9 bn) by the promoter, Everstone Capital.
INDOSTAR is at the beginning of its ‘second innings’. Its ongoing business diversification will help drive growth, improve credit rating and also enable it to enjoy greater leverage.
While its RoE is expected to be subdued at 9-11 percent in the near term, it is likely to improve to 13-15 percent over the medium term. Over the long term, the RoE could improve to over 16 percent.
With a capital adequacy ratio of 30 percent, it is well capitalized and will not require any further dilution over the medium term. Motilal Oswal believes that the risk-reward is favorable at current valuations of 1.1x FY20E BVPS. Rs 525 (1.2x FY21E BV).
Orient Electric: Buy| LTP: Rs 166| Target: Rs 210| Upside 26%
Investec Securities initiated coverage on Orient Electric with a buy rating and a target price of Rs 210. Following its demerger from Orient Paper in 2017, Orient Electric’s (Orient) new management team has undertaken measures to improve the co’s brand positioning, product offering, distribution, and logistics.
This places Orient in good stead to tackle competition and extract operational efficiency gains. Moreover, with expanding the scale, op-leverage benefits should be meaningful, given that Orient’s fixed expense as a percentage of revenues is higher than peers.
This should help it deliver 26 percent PAT CAGR over FY18-21E. Investec also sees the scope of expansion to Orient’s already impressive RoEs (25%+), driven by high fixed asset turns and likely moderation in working cap.
At 34x FY20/ 27x FY21 PE, Orient is trading at a discount to Electrical cos, despite stronger EPS growth.
Bandhan Bank: Buy| LTP: Rs 598| Target: Rs 763| Upside 27%
ICICI Securities initiated coverage on Bandhan Bank with a buy rating and a target price of Rs 763. Bandhan Bank (Bandhan) is a unique example in the Indian financial landscape.
The stock trades at a P/E of 28x and P/BV of 5.3x on a 12-month forward basis, below its 1-year trading history average of 5.5x.
Based on our probability weighted RoA of 3% and implied sustainable RoE of 32 percent, ICICI Securities value the stock at a P/B multiple of 5.7x resulting in our target price of Rs.763.
Himatsingka Seide: Buy| LTP: Rs 220| Target: Rs 290| Upside 31%
Kotak Securities initiated coverage on Himatsingka Seide Ltd with a buy rating and a target price of Rs 290. Himatsingka Seide Ltd (HSL) is a vertically integrated home textile player with manufacturing facilities in India and has retail and distribution businesses in North America, Europe, and Asia.
The company has adopted an integrated business model with presence from farm to store. This results in cost efficiency and delivering quality products to its customers.
HSL is focused on building a strong brand portfolio through owned and licensed brands contributing 75-80% of its revenue.
Going forward, the company intends to add more brands as part of its long term growth strategy and enhancing its market share in the branded home textiles segment. HSL is at the final stage of its capex with deleveraging going to be the core focus of the company.
We expect company's sales, EBITDA and PAT to grow at a CAGR of 11.5%, 17.8% and 13.7% respectively with 360bps improvement in EBITDA margins in FY18-21E.
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