The Indian stock market has gradually been moving higher forming a firm base since the government announced a slew of measures starting August 2019.
Moreover, consistent FII buying, fiscal stimulus by top global central banks along with favourable global cues have bolstered the sentiment on the Indian story, despite GDP growth rate plummeting to a six-year low in Q2 FY20.
Experts are of the view that the current rally, which is presently driven by a few heavyweights, will spread further in the next fiscal.
According to them, the premium valuations of frontliners could be a cause of worry and shifting the focus to value, cyclical and quality mid & smallcap stocks should be the prefered strategy.
Lower interest rates and good monsoon are expected to help the economy. Also, positive developments in the global arena for the US-China trade deal and the Brexit resolution will provide additional support to the domestic economy in the future, said Vinod Nair, Head of Research at Geojit Financial Services.
Here is a list of 10 stocks that can return 15-70 percent in the next 8-15 months:
Brokerage: Edelweiss Securities
Yes Bank: Buy | Target: Rs 101 | Return: 70 percent
We perceive Yes Bank as a high risk-return potential candidate as our base-case holds out the bank is here to stay, braving the known and unknown challenges and a temporary lull in earnings. At its current 0.8x FY21E P/B, the stock factors in multiple challenges and a clear under-valuation of its liability franchise.
The m-cap-to-deposit at sub-10 percent – lowest among peers – starkly reflects the under-appreciated franchise value. Once it navigates the challenges, the revamped business model would emerge stronger, sustainable and less volatile. Hence, we are upgrading the stock to buy from hold with a target price of Rs 101 and including it in our Braveheart Series.
Brokerage: CLSA
Indiabulls Housing Finance: Buy | Target: Rs 450 | Return: 55 percent
Indiabulls Housing Finance (IHFL) said that the Ministry of Corporate Affairs (MCA) has filed an affidavit with the Delhi High Court stating that the five loan cases alleged in the appeal are either repaid or standard loans. While the court's decision is pending and more filings will be made, this development should abate some concerns. Clarity here can also improve IHFL's access to the debt markets, aiding liquidity and growth.
Our base case still assumes marginal growth till FY21 as we watch out for progress on co-origination partnerships and on-balance sheet growth. A 200bps higher loan growth can lend a 3 percent earnings upside and 20bps lower credit cost can lift it by 4 percent in FY21. Valuations are attractive and can rerate as concerns recede; we reiterate buy with a target price of Rs 450 (revised from Rs 350).
Brokerage: BP Equities
Central Depository Services: Buy | Target: Rs 268 | Return: 19 percent
Central Depository Services' (CDSL) strong business model, diversified revenue stream, robust cash flow generation, new avenues of insurance and academics provides significant opportunity to increase its revenue and expand margins. All these factors coupled with competent management team helps in gaining visibility for long term sustainable growth. On valuation front, we have valued the company by assigning a multiple of 19.2x PE of FY21E with a buy rating on the stock with target price of Rs 268.
Brokerage: IDBI Capital
VIP Industries: Buy | Target: Rs 574 | Return: 34 percent
We initiate coverage on VIP Industries (VIP) with a buy rating and a target price of Rs 574 based on PER of 32x FY22E. VIP is a proxy play on rising spends towards travel and tourism in India. It is a leader in an industry dominated by unbranded players.
Further, it has established brands, strong distribution network, skilled management and strong product portfolio. We expect its sales/EBITDA/net profits are to grow at CAGR of 11 percent/25 percent/20 percent over FY19-22E, respectively.
We believe that the premium valuation (PER of 24.4x FY22) is justified given significant growth prospects (60 percent market unorganized), strong balance sheet, high return ratios (FY17-19 average ROE of 26 percent) and leadership position.
Brokerage: SMC Global
Federal Bank: Buy | Target: Rs 113 | Return: 31 percent
The bank of the business grew strongly and management of the bank have focus in wholesale banking which would continue to give strong, balanced credit growth, improvement in asset quality. The bank has empanelled in 15 states and catering 200 government entities. New partnerships in General Insurance with Tata AIG and HDFC Ergo to augment fee income also has opened new Call Centre for cross selling products like Credit Card, Insurance and to extend exclusive support to Ultra HNI and NRE customers would help to increase other income. Thus, it is expected that the stock will see a price target of Rs 113 in 8-10 months time frame.
APL Apollo Tubes: Buy | Target: Rs 2,006 | Return: 28 percent
The company is doing well and management of the company expects steel demand in India is expected to grow around 6-8 percent by FY21, of which, steel pipe will form 10-12 percent of the total steel demand and proportion indicates the significant opportunity for steel pipe consumption in the years to come. The company remains confident of delivering a sales volume growth of 20 percent CAGR in FY20 & FY21. Thus, it is expected that the stock will see a price target of Rs 2,006 in 8-10 months time frame.
Brokerage: Dalmia Securities
Sudarshan Chemical Industries: Buy | Target: Rs 481 | Return: 21 percent
It is the largest Pigment producer in India with 35 percent market share. In the international scenario, it currently ranks 4th with an intention to be amongst the top 3 producers in the next 5 years.
Over a period of time, the company has laid down special emphasis on exports to boost its revenue. It currently comprises about 49 percent of its revenues.
The company is now undertaking significant capex till FY2023 of around Rs 1,000 crore to meet its future requirements. Though it has increased the leverage in its balance sheet, yet the financial performance is expected to remain steady to meet its debt obligations.
We are positive on its long term growth prospects and would value the scrip at 22x FY21E EPS of Rs 21.85 and assign a target price of Rs 481 in the next 12-15 months time period.
Brokerage: Anand Rathi
Bajaj Finance: Buy | Target: Rs 4,818 | Return: 21 percent
In its latest quarterly results, Bajaj Finance has reported 63 percent growth in PAT to Rs 1,506 crore led by 38 percent loan growth and NIM expansion of around 90 bps to around 12.1 percent YoY. Asset quality remains under control with GNPAs and NNPAs coming at 1.61 percent and 0.65 percent respectively.
A well-diversified credit portfolio, focus on cross selling, customer acquisition, systematic expansion in delivery channels both physical and virtual, and distribution of products through these channels are likely to sustain robust growth in AUM going forward. We reiterate our coverage on Bajaj Finance Ltd with a buy rating and target price of Rs 4,818 per share
Larsen & Toubro Infotech: Buy | Target: Rs 1,860 | Return: 15 percent
On the ramp-up of large deals earlier won, LTI's Q2 revenue, at $364 million, was better than expected, up 2 percent QoQ, 10.7 percent YoY (in constant currency, up 2.4 percent QoQ, 11.9 percent YoY). Wage hikes, hiring and lower utilisation ate into the EBIT margin, which was down 43bps QoQ to 15.5 percent. Three new deal wins of $100m TCV and the healthy deal pipeline offer assurance of growth.
On acquiring Lymbyc, the company acquired another cloud consulting company, Powerup Cloud Technologies, to augment its digital abilities. Despite client-specific hiccups, the healthy deal pipeline and continuous large deal wins ensure growth acceleration from Q3, after the improved Q2. LTI guided to double-digit growth in FY20.
Overall, the better-than-estimated quarter and the brighter outlook for H2 give us confidence of growth ahead. The stock trades at 17.5x FY21e PE, and our target is based on a target PE of 20x FY20e EPS of Rs 93.
Suven Life Sciences: Buy | Target: Rs 387 | Return: 43 percent
In earnings and revenue, we expect respectively 13.6 percent and 38.5 percent CAGRs over FY19-21 driven by Suven’s core CRAMS and traction in commercial quantities. Suven’s core CRAMS business at 990m grew 38 percent y/y in Q2 FY20 and revenues from commercial quantities were 1.08bn.
Management raised its full-year commercial quantity sales guidance to 1.8bn. On the scaling-up of projects and supplies of molecules in phase-II and -III trials, its core CRAMS business, we believe, would clock a 12 percent revenue CAGR over FY19-21. At end- Q2 FY20, Suven had an active CRAMS pipeline of 117 projects: 78 in phase-I, 34 in phase-II, one (oncology) in phase-III and four commercial.
Considering the lower-than-anticipated R&D cost and operating expenses, we raise our FY20e and FY21e EBITDA respectively 16.7 percent and 22.8 percent.
At the CMP of 309, the stock trades at 26.7x and 23.6x respective FY20e and FY21e earnings. We expect revenue and PAT CAGRs over FY19- 21 of 13.6 percent and 38.5 percent respectively. We retain our Buy recommendation, based on 15x FY21e base-business earnings and a net value of 108 a share for the NCE pipeline.
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