The global investment bank, BofAML in a note said that the index could move towards 32,000 towards the end of the next year which does not leave any room for upside from current levels.
The S&P BSE Sensex which has already rallied by about 24 percent so far in 2017 could turn flat in the year 2018, and the only way to outperform benchmark indices is to bet on individual stories.
The global investment bank, BofAML in a note said the index could move near 32,000 towards the end of the next year which does not leave any room for upside from current levels.
The global investment bank said it arrived at the valuations for the Sensex using top-down estimates for earnings growth i.e. 15 percent and a 16.5x forward P/E multiple. The S&P BSE Sensex currently trades at 18.5x forward which is well above its historical average of 15.3x.
Here is a list of top ten lesser-known stocks where brokerage houses initiated coverage for the first time in the last two weeks:
Solar Industries: BUY| Target Rs 1,537| Return 35 percent
Ventura Securities initiates coverage on Solar Industries with a buy rating and a 12-month target price of Rs1537, betting on growth potential. Solar Industries India Ltd (SIIL) is a leading manufacturer and exporter of industrial explosives and defence equipment.
According to the brokerage firm, there are not many companies in the Indian market which have sustainably grown at a CAGR of 23.8 percent over the period of 11 years i.e. FY2006-2017.
Given the high growth estimate of its user industries viz infrastructure, mining and defence coupled with its international expansion plans, the growth momentum is expected to sustain over FY2017-2020.
Solar Industries India Ltd. (SIIL) is the dominant player in the explosives industry and is nearly 5X that of its nearest peer GOCL (by revenue). Over the period FY2017-2020, Ventura expects revenues to grow at a CAGR of 25.3 percent from Rs1579.9 crore to a Rs3131.4 crore.
ION Exchange: BUY| Target Rs 6,16| Return 48 percent
IndiaNivesh initiates a buy rating on ION Exchange (IEL) with a target price of Rs616, based on strong revenue growth and impressive cash generating a profile. The positive view from the brokerage firm is based on strong 21.6 percent and 29.9 percent revenue and net profit CAGR respectively.
Apart from that, the company has an impressive cash generating profile, unlevered balance sheet and ROE expansion from 14.5 percent in FY17 to 19 percent by FY20. IEL is trading at FY19 and FY20 P/E multiple of 13.7x and 10.8x respectively.
Given the strong outlook, the brokerage firm assigns 16.4x to an average of our FY19 and FY20 estimates, to arrive at a price target of Rs616.
SIS: BUY| Target Rs 1,300| Return 21 percent
IIFL Institutional Equities initiates a coverage on SIS with a buy rating at Rs1300 by March 2019, based on a 27x forward P/E. SIS is India’s second-largest and fastest-growing security services provider and is additionally growing rapidly in facility management services, into which it has recently forayed.
The brokerage firm estimates imply a 44 percent EPS CAGR over FY17-20, driven by a 21 percent revenue CAGR and a 160 bps expansion in Ebitda margins on the back of improving operating efficiencies and a shift in revenue mix towards the higher-margin India business. Tax benefits under Sec 80JJAA are an added boost.
Kirloskar Ferrous: BUY| Target Rs 155| Return 41 percent
Centrum Broking initiates a buy rating on Kirloskar Ferrous (KFIL) with a target price of Rs155. KFIL is a leading casting producer in India and possesses niche capabilities with the production of grey iron and spheroidal graphite iron castings.
The brokerage firm expects EBITDA/PAT CAGR of 28%/29% during FY17-20E, led by volume CAGR of 19 percent in the casting business coupled with cost efficiencies and operating leverage leading to higher margins and strong improvement in return ratios. The brokerage firm sees strong scope for re-rating.
Ganesha Ecosphere: BUY| Target Rs 486| Return 25 percent
IndiaNivesh initiates a buy rating on Ganesh Ecosphere with a target price of Rs486. The Company has emerged as one of the leading PET- recycled RPSF manufacturers in India.
The polyethylene terephthalate (PET) recycling industry in India has grown to Rs35 billion as of 2017, processing 0.85 mn MT of waste, with organised sector cornering 65 percent share of the total pie.
The brokerage firm is of the view that the potential for Ganesh Ecosphere, being the largest PET recycler in India with present RPSF capacity of 87,600 MT, is huge and it will benefit on the back of its strong collection network, planned capacity expansion, and resultant margin improvement.
Sterlite Technologies: BUY| Target Rs 346| Return 23 percent
GEPL Capital initiates a buy rating on Sterlite Technologies with a target price of Rs 346. The company is a global leader in the optical telecommunication products and headquartered in Pune and has operations all over India and abroad.
Sterlite Tech is a pure play Telecom Products, Services & Software Company that transforms lives by delivering smarter networks. Compared to its peers; Sterlite is trading at a discount P/E multiple, even though its margins are better than or comparable to peers.
Varun Beverages: BUY| Target Rs 590| Return 17 percent
ICICIdirect initiates coverage on Varun Beverages with a buy rating and a target price of Rs590. Varun Beverage (VBL), a part of RJ Corp group, is the second largest PepsiCo franchisee globally (ex-US).
VBL is engaged in the business of manufacturing and distributing PepsiCo’s CSD and NCB products across licensed territories in India, Nepal, Sri Lanka, Morocco, and Zambia.
In CY16, India business contributed 77% to total revenue while international business contributed the rest. Due to the consolidation of newly acquired territories, new product launches, and higher growth potential in operating regions, ICICIdirect expects VBL to report revenue CAGR of 12.4 percent in CY16-19E with EBITDA margin of 21.6 percent in CY19E.
Talbros Automotive Components: BUY| Target Rs 353| Return 24 percent
Ventura Securities initiates coverage on Talbros Automotive Components Ltd with a buy rating and a target price of Rs353. After a period of consolidation, Talbros Automotive Components Ltd (Talbros) is all set to resume its high growth trajectory.
The introduction of heat shields and export orders from new client additions to its forgings business augurs well for revenue visibility over the medium term. Further its JVs are also expected to contribute positively.
The domestic brokerage firm expects revenues to grow at a 14 percent CAGR from Rs 328.8 crore in FY17 to Rs 487.1 crore in FY20. EBITDA is expected to grow by 16.5 percent CAGR from Rs 40.8 crore in FY17 to Rs 64.5 crore in FY20.
Time Technoplast: BUY| Target Rs 230| Return 14 percent
ICICIdirect initiates a buy rating on Time Technoplast Ltd (TTL) with a target price of Rs230. TTL is the largest manufacturer of polymer-based industrial packaging products (with volume market share of ~70%) and composite cylinders in India.
During FY15-17, TTL divested its stake in less profitable geographies and did a capex of over Rs300 crore for expansion of various product lines. Being largely in the B2B category, TTL plans to add more value-added products (VAPs) to reduce its dependence on established products (EPs).
The brokerage firm believes that VAPs contribution to the topline would increase sharply from 13 percent in FY17 to 23 percent by FY20E, led by revenue CAGR of 40 percent in FY17-20E.
Additionally, with sales growth in the EPs segment (~11%), ICICIdirect believes that the consolidated sales would record a CAGR of ~16 percent in FY17-19E. Further, no major capex on the cards and saving in interest cost (due to reducing debt/equity) would result in better return ratios, going forward (RoCE, RoE of ~18%, ~15% by FY20E).
SBI Life Insurance Company: BUY| Target Rs 760| Return 14 percent
ICICIdirect initiates coverage on the newly listed SBI Life Insurance Company Ltd with a target price of Rs760. SBI Life Insurance Company (SBI Life) was established as a JV between State Bank of India and BNPPC, an insurance subsidiary of BNP Paribas.
With robust growth of 35.45% CAGR in FY15-17, SBI Life was the largest private insurer in terms of NBP gaining private market share at 20.04 percent. SBI Life has a big advantage due to its bancassurance with SBI, with a network of ~24000 branches.
A diversified product mix and strong distribution capabilities will pave the way for faster growth, market share ahead. While focus on linked business is seen driving healthy growth in NBP at 22.1 percent CAGR in FY18-20E, improving efficiency and increase in the share of protection products will drive operating RoEV at 23 percent in FY18-20E.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.