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Last Updated : Apr 11, 2018 02:07 PM IST | Source: Moneycontrol.com

Market awaits corporate earnings, macro data; top 10 stocks which can give up to 49% return

Now all eyes are on corporate earnings and Karnataka elections along with crude oil movement, experts suggest.

Sunil Shankar Matkar
 
 
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After the rally in previous four consecutive sessions, the market started consolidation ahead of corporate earnings that will start later in the week and macro data due tomorrow evening.

Investors are also closely monitoring crude oil price movement as Brent crude oil futures on Tuesday crossed the USD 70 a barrel and hit the highest level since late 2014. For India, which imports more than 80 percent of oil requirement, it is a big hit on fiscal front.

Trade war tensions already abated after China announced measures to open up its economy.

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Now all eyes are on corporate earnings and Karnataka elections along with crude oil movement, experts suggest.

"January was a good month for the market, but the Street saw a correction of more than 10 percent from all time high levels seen earlier. Now we are seeing a pullback rally and beaten down stocks have performed well from the upmove we are seeing from March 23. We could see another 100-200-point spike, as the earnings season is about to start. Major part of the focus will be on earnings season," AK Prabhakar, Head — Research, IDBI Capital, told Moneycontrol.

The Street will watch out for the commentary as well, which is currently worrisome, he said.

Chola Securities, which also said investors would keenly await signs of pick-up in corporate earnings in the upcoming 4QFY2018 earnings season, expects in the medium term the markets to be watchful of the outcome of investigations in banking space post PNB scam.

"With elections in various state legislative assemblies lined up this year, we expect markets to react on political developments," it added.

Here is the list of top 10 stocks which can give up to 49% return:

Brokerage - Motilal Oswal

Exide Industries | Rating - Buy | Target - Rs 268 | Return - 12%

Exide Industries' Q3FY18 net sales grew 32.7 percent YoY to Rs 2,280 crore, driven by growth in automotive, UPS, telecom and infrastructure batteries. EBITDA margin contracted to 12.4 percent.

PAT grew 1.8 percent YoY to Rs 154 crore. Management indicated that growth momentum in automotive and motorcycle batteries was good, while demand for telecom, UPS and other infrastructure segments was also good.

Exide is focusing on cost-control initiatives and technology upgradation to improve profitability. We have a Buy rating with target price of Rs 268.

Jubilant Life Sciences | Rating - Buy | Target - Rs 957 | Return - 17%

Jubilant Life Sciences (JLS), is engaged in the manufacturing of radiopharmaceuticals, allergy products, advanced intermediates, nutritional products and life science chemicals. We expect specialty pharma to grow at a 16 percent CAGR (adjusting for Triad business) over FY17-20.

In the LSI segment, the business scenario has improved for specialty intermediates and nutritional products due to lower supply from Chinese competitors as a result of production restrictions imposed by the Chinese government to reduce pollution.

We expect JLS to deliver a CAGR of 17 percent in revenue (including Triad revenue from QQFY18) to Rs 9,300 crore, 14 percent in EBITDA to Rs 1,980 crore and 20 percent in PAT to Rs 1,000 crore over FY17-20. We value JLS on an SOTP basis with a target price of Rs 957 and re-iterate Buy.

Pidilite Industries | Rating - Buy | Target - Rs 1,065 | Return - 9%

Pidilite Industries (PIDI) is the largest branded adhesives player in India. Apart from a strong presence in adhesives, company has expanded into emerging segments like mechanized joinery, modular furniture, flooring, automotive care and water proofing through Dr Fixit and Roff.

PIDI offers a high-quality discretionary play, with a strong competitive positioning, proven in-market excellence and an impeccable track record of generating long-term shareholder value over multiple periods.

A revival of volume growth and a strong potential shift from unorganized players over the next 2-3 years outweigh near-term margin worries. We have a buy rating on the stock with target price of Rs 1,065.

Power Grid | Rating - Buy | Target - Rs 287 | Return - 46%

Power Grid has around Rs 1 lakh crore of orders pending execution, providing strong visibility of EPS CAGR of around 12 percent over FY18-22. The earnings estimate factors in a 150bp cut in the regulated return on equity-RoE (to 14 percent) in the next tariff regulations. However, with bond yield rising over the last few months, the extent of such cut could be lower, in our view.

At CMP, the stock is trading attractively at 1.4x FY20E P/BV for an RoE of around 16 percent and a CoE of around 10-11 percent, not appreciating any future growth potential.

If we were to assume no growth after FY20, which means PAT is available for dividend distribution, the stock is trading at an attractive dividend yield of around 11 percent for an assured return model and revenues backed by state-guarantees (g-sec yield is around 7 to 8 percent). We re-iterate our Buy rating with a DCF-based target price of Rs 287/share.

M&M | Rating - Buy | Target - Rs 889 | Return - 15%

M&M is the market leader in UV and tractors, with market share of over 40 percent in both segments. Q3FY18 volume grew 6.5 percent YoY (-3.8 percent QoQ) to 210.2k units, as tractor, UV and 3W volumes increased 6.3 percent, 5 percent and 8.5 percent YoY, respectively.

Net realizations grew 3.6 percent YoY (-0.6 percent QoQ) to Rs 5,46,600. Net revenue grew 10.3 percent YoY (-4.4 percent QoQ) to Rs 11,490 crore. EBITDA margin expanded 110bp YoY (-130bp QoQ) to 14.7 percent.

M&M is the best bet on rural markets, with around 70 percent of consolidated profits attributable to rural markets. We maintain a Buy rating with target price of Rs 889.

Brokerage - Ventura

Raymond | Rating - Buy | Target - Rs 1,535 | Return - 49%

Raymond’s has undertaken a series of strategic initiatives to chart out a course of sustained growth and improve profitability. Steered by a recently inducted professional management at the helm, we expect revenues to grow at a CAGR of 11.7 percent to Rs 7,463.3 crore by FY20.

High growth of the branded apparel segment is the primary driver, which in turn is supported by high advertisement & selling expenses for brand building. As the brands sustain on their own, we expect advertisement & promotion spends to normalize and the EBIDTA margins of this segment to improve gradually from the current meagre levels.

We expect the consolidated EBIDTA to grow at a CAGR of 28.4 percent to Rs 644.7 crore by FY20. While earnings growth is expected to witness a 81.2 percent CAGR over the same period Rs 212.1 crore over the same period. A turnaround of non-core assets, viz. tools & hardware and auto components, should be further growth drivers.

The icing on the cake is the veritable premium land bank of approximately 125 acres in the heart of Thane city (the fastest growing real estate on the outskirts of Mumbai). We have valued this property at Rs 3,125 crore (i.e. at a discount to the market price). This compares favourably with the current market capital of Rs 6,360 crore, implying significant undervaluation. Firming of strategic monetisation plans on the real estate business should lead to a significant re-rating.

We initiate a Buy with an SOTP price objective of Rs 1,535 which represents an upside of 49 percent from the CMP of Rs 1,030 over a period of 18 months.

Brokerage - Geojit Research

Natco Pharma | Rating - Buy | Target - Rs 908 | Return - 16%

Natco Pharma is a R&D focussed, vertically integrated pharmaceutical company with an experienced management team and presence across multiple speciality therapeutic segments.

It has high emphasis on R&D and complex molecules focusing on long term stability and growth. It recently raised Rs 915 crore to fund capacity additions.

Integrated platform makes Natco a low cost manufacturer while strong global presence establishes them as a prospective player. We expect EBITDA margin to remain stable at 40 percent over FY18-20E led by new launches in US & India and improvement in operational efficiency.

Consolidated revenue/PAT to grow at 17/13 percent CAGR over FY18-20E led by prime molecules such as Tamiflu, Copaxone, Doxorubicin and Lanthanum and better growth in domestic market.

We value Natco at 19x on FY20E EPS and arrive at a target price of Rs 908 and recommend Buy rating.

Brokerage - Edelweiss Research

Finolex Cables | Rating - Buy | Target - Rs 800 | Return - 14%

We estimate Finolex Cables (FCL) to post 17/15 percent revenue/earnings CAGR over FY17-20 on robust outlook for communication cables and rising demand for consumer electricals.

We recently met the top brass of FCL. Key takeaways include: 1) FCL posted lower revenue growth versus peers in past two-three years, largely owing to weak housing demand where the company has major (around 60 percent of revenues) presence compared to peer-set; 2) management seemed upbeat on communication cables segment (we estimate the unit to log around 25 percent CAGR over FY17-20) given burgeoning demand for optic fibre cables (to lay 35-40mn km annually over next two-three years) as India remains highly under fiberised (around 40-45 percent) to meet the complete 4G roll out; and 3) with FCL’s new PVC switches unit coming up at Goa, it is targeting Rs 200 crore revenues from fans and switchgears by FY20.

Notwithstanding the real estate slow-down, we expect 15/20 percent earnings/OCF growth over FY17-20 on strong growth in non-housing segments. We maintain Buy with target price of Rs 800, based on 25x FY20E PE.

Brokerage - Reliance Securities

HeidelbergCement | Rating - Buy | Target - Rs 205 | Return - 32%

On HeidelbergCement India, there are expectations of healthy Q4FY18 numbers mainly to be aided by healthy volume in Central markets.

Our channel check suggests that Central region is likely to see realizations improvement of around 5 percent YoY and around 4 percent QoQ in Q4FY18.

Further, with the resolution of sand mining issues in Uttar Pradesh, demand in central region has witnessed a firm recovery aiding companies to witness healthy sales volume.

Further, with no meaningful capacity addition coming in Central region in next 2-3 years except UltraTech and JK Cement, we believe HCIL would hit a sweet spot to improve its financials in ensuing years, on the back of healthy demand outlook owing to favourable monsoon, likely uptick in government spending in UP & MP and resolution of sand mining issues.

Further, likely de-leveraging of balance-sheet along with better operating performance is expected to result in improvement in return ratios.

We maintain our fundamental BUY recommendation on the stock with a target price of Rs 205.

NCC | Rating - Buy | Target - Rs 150 | Return - 14%

In NCC, there are expectation of healthy performance in coming quarters owing to robust construction activities and healthy order book.

NCC added orders worth Rs 21,600 crore in 9MFY18 vs. Rs 9,300 crore in 9MFY17 led by significant order addition from roads & highways and buildings segments. Current order book at Rs 31,600 crore (4.3x TTM revenue) offers promising growth visibility in coming years.

Notwithstanding deterioration in working capital cycle in 9MFY18 owing to higher working capital requirement led by mobilisation advances to sub-contractors for new projects, we expect it to improve, going forward with the expected pick-up in execution and further collection of mobilisation advances.

We expect NCC’s revenue and earnings to clock 15 percent and 34 percent CAGR, respectively through FY17-FY20E on robust growth in order book.

We maintain our fundamental Buy recommendation on NCC with a target price of Rs 150.

Disclaimer: The views and investment tips expressed by investment experts 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 Apr 11, 2018 02:07 pm
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