Ajay Jaiswal
Samvat 2074 was a roller coaster year on all fronts. Relentless increase in Brent crude prices from $55.92/barrel to $75.91/barrel on October 30, 2018 after hitting a high of around $86/barrel early October 2018, sharp depreciation of INR against USD from 65.04 to 73.67 and increase in current account deficit impacted India's economic indicators.
Imposition of LTCG Tax, electoral setback to the ruling government in Karnataka, oppositions’ clamour on Rafale deal and default by IL&FS to meet its obligations and liquidity squeeze all led to loss of sentiment in the market. On the positive front, formalisation of the economy, increase in the tax base, smooth transition of GST in the second half were some of the structural changes that give confidence for a long-term sustainability.
On the global front, US president lived up to his poll promises and waged trade war against China and some other countries which the world had never witnessed before. Sharp increase in US fed rates on robust US economic growth led to flight of capital from emerging markets. However, US-North Korea talks, a first of its kind signalled peace in the region.
Outlook Samvat 2075
Being an election year, we believe a sharp upside cannot be ruled out in case the ruling government once again manages to retain thumping mandate. Nevertheless, expect severe bouts of volatility during the year ahead. However, the current political developments in the country indicate that it may not be a cake-walk for the ruling government in general elections 2019.
On the global front, US Fed may raise interest rates four times between now and next Diwali, one this year and probably three next year till the end of Samvat 2075. We believe after the pre-poll election results, a serious trade talk may take place between US and China and the Trump government may focus on reconstruction of the US infrastructure, one of the other poll promises of the government.
This may lead to increase in demand of commodities especially, steel, copper, aluminum, etc. Hence a commodity rally, ex-oil may be in the offing from the middle of Samvat 2075.
According to Bloomberg consensus estimates, forward 12-month EPS of Nifty is 628, which makes it trade at 16.30 times. On the basis of the same estimates, we expect Nifty to trade at 15.50-18.50 times forward 12-month EPS estimates, which makes a range of 9,734-11,618 during Samvat 2075.
Here is the list of top five picks which could return 18-45% by Samvat 2075-end:
Larsen & Toubro: Strong Buy | Target: Rs 1,610 | Return: 18%
We believe the company is already witnessing strong order inflow, improving working capital and stronger generation of cash flows.
Going ahead we expect the margins to improve with higher execution rate and international orders. With huge domestic capex spending, the company is the best placed to capitalise the opportunity.
We assign PE multiple of 20x to its FY20E EPS to arrive at a target price of Rs 1,610.
Mahindra & Mahindra: Strong Buy | Target: Rs 1,044 | Return: 32%
Considering consecutive good monsoon, government's increased focus on improving rural infrastructure, rise in MSP, stringent emission norms, implementation of fleet modernisation program, series of new launches in the PV space, strong R&D, increasing global footprint and first mover advantage in EV, we are assigning a PE of 17x to FY20E EPS of Rs 61.4 to raise target price to Rs 1,044 from earlier target price of Rs 862.5.
Bata India: Strong Buy | Target: Rs 1,280 | Return: 26%
We expect Bata to report net revenue CAGR of 16.5 percent to Rs 3,575 crore over FY2018-20E backed by increasing brand awareness, new product launches, higher number of store additions in tier II/ III cities & focus on high growth women’s segment.
Further, on the bottomline front, we expect CAGR of 28 percent to Rs 366 crore over the same period on the back of margin improvement led by increasing premium product sales.
Thus, considering facts we assign a P/E(x) multiple of 45 (x) on FY20E EPS, to arrive at a target price of Rs 1,280.
Engineers India: Strong Buy | Target: Rs 159 | Return: 33%
Ongoing oil marketing companies' capex in India, recovering oil prices, strong order book and deal pipeline, place EIL in a sweet spot. The order inflow has improved significantly in last 2 years led by BS-VI emission norms and modernization of Vizag refinery.
Looking ahead, we expect order inflow to remain strong in domestic market which provides promising revenue visibility for next couple of years.
Considering all these, we have assigned a multiple of 18 times to its FY20 EPS and arrive at a price of Rs 159.
Jagran Prakashan: Strong Buy | Target: Rs 164 | Return: 45%
With the economy improving and the impact of GST also waning, the second half of FY19 looks much better for print media. This is on the back of expectations that spending on advertising would pick up meaningfully in months closer to the general election in 2019.
We expect incremental growth driven by healthy ad spend by FMCG, education and real estate. Further, strong footing in the radio market and increasing presence in the digital space bodes well for the growth outlook.
Considering all these, we have assigned a multiple of 12.5 times to its FY20 EPS and arrive at a price of Rs 164.
Disclaimer: The author is President – Strategies & Head of Research at Stewart & Mackertich Wealth Management. 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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