Financial year 2018 closed on a strong note with the S&P BSE Sensex and Nifty50 rallying 10-11 percent in the last 12 months, but the next months is unlikely to offer stability to investors.
FY19 promises to be a volatile year for equity markets with indices moving 10-20% in either direction. There are plenty of global headwinds which might arrest the liquidity flow while on the other hand uncertainty around general elections, rising crude oil prices, as well as state election, rate action by the central bank is likely to cap upside.
However, if earnings move at a steady pace in FY19 and reach the double-digit mark, excessive fears about over valuations might go away. But, till that volatility is the name of the game.
“The uncertainty on the BJP’s strong majority in 2019 elections may make us less attractive on the global space for the next financial year. Participants are concerned over the ruling party’s defeat in recent by-polls in UP and Bihar and the no-confidence motions moved by the TDP and the YSR Congress,” JK Jain, head of equity research at Karvy Stock Broking told Moneycontrol.
“If the SP and the BSP come together, it could significantly hurt a number of seats BJP can win. And, on the other side, the upcoming elections in Karnataka may be seen as key point by most analysts,” said Jain.
He further added that for FY19 we expect the Nifty to be very volatile and move in a band of around 20 percent and is more likely to stay in a broad range of 8900-9100 on the downside to 11000-11200 on the upside.
One factor which could turn the tide in favour of bulls is earnings. Appreciation in the equity market is driven by valuation multiple expansion and earnings expansion.
The domestic equity market earlier expansion was mainly driven by valuation multiple expansion driven by stable macro & political environment in the country and high liquidity in the global market, say, experts.
“Further expansion in multiple is unlikely to happen again, though the concern of its downgrade increased with the rise in political uncertainty in India, rising concerns over inflation, emerged trade war in the global economy,” Sumeet Bagadia Associate Director Choice Broking told Moneycontrol.
Bagadia further added that FY19E EPS is expected at Rs1,953 and latest reported earnings trend also showing progress in earnings momentum, but the further direction of the market is mainly dominated by macro events. Sensex at 33,000 is still trading at a P/E (x) of 22.5 to latest reported TTM EPS.
We have collated a list of ten stocks from different experts which could give up to 40% return in the next 2-3 years:
Analyst: Amarjeet Maurya- Sr. Equity Research Analyst, Mid-Caps at Angel Broking
Music Broadcast Ltd (MBL): BUY| Target Rs475| Return 19.6%
Radio Industry is protected by licenses for 15 years, thereby restricting the entry of new players. This would support the existing companies to strengthen their position and maintain a healthy growth rate.
It has grabbed the Number 1 position in Mumbai, Bengaluru, and Delhi in terms of a number of listeners. This is helping MBL to charge a premium rate, which results in higher EBITDA margin (33.6%) compare to 22% of ENIL.
MBL outperformed its closest peer with 18.4% CAGR in revenue over FY2013-17 (ENIL reported 13.2% CAGR in revenue). On the profitability front too, MBL, with 32.3% CAGR in PAT over FY2013-17, has performed much better than ENIL (-5.2% CAGR in PAT).
Moreover, Radio City posted a six-year CAGR of 12.1% compared to 9.1% of industry owing to higher advertising volumes.
Capex for 39 licenses have been done for the next 15 years, hence no heavy incremental Capex requirement would emerge. Moreover, the maintenance Capex would be as low as Rs5-10crore.
This would leave sufficient cash flow to distribute as a dividend. We have a Buy recommendation on the stock and target price of Rs475.
Navkar Corporation Ltd: BUY| Target Rs265| Return 76%
NCL is one of the largest and one of the three CFS at JNPT with rail connectivity, helping it garner high market share at the port.
NCL is in a massive expansion mode where it is increasing its capacity by 234 percent to 1,036,889 TEUs at JNPT and coming up with an ICD at Vapi (with Logistics Park).
The ICD with rail link should benefit from first mover advantage in a region that has huge market potential and accounts for ~27 percent of volumes at JNPT.
The ICD should be able to capture the EXIM volumes from the region through rail link that till now was being custom cleared at JNPT (Import) or being transported via road and consolidated at JNPT (Export).
South Gujarat volumes will now head straight to the Vapi ICD; thus the company can now cater to bulk commodities and domestic traffic that it had been rejecting owing to capacity constraints at CFS.
We expect NCL to successfully use its rail advantage and scale up its utilizations at both JNPT and Vapi ICD. We have a Buy rating on the stock.
Dewan Housing Finance Ltd (DHFL): BUY| Target Rs720| Return 41%
Backed by healthy capital adequacy and increasing demand for home loans DHFL’s loan book is expected to report 23 percent loan growth over next two-three years.
DHFL sold 50 percent stake held by it in DFHFL Pramerica Life Insurance Co Ltd which added Rs1,969 crore to its net worth and increases its CAR by 400 bps, to 19.3 percent which should fuel growth for next 2-3 years.
Strong NIM on the back of lower cost of funds and lower credit cost will ensure healthy return ratios for the company. Despite strong growth, the company has maintained stable asset quality and we expect the trend to continue.
We expect the company’s loan growth to remain 23 percent over next two years and earnings growth is likely to be more than 28 percent. The stock currently trades at 1.9x FY2019E ABV. We maintain Buy on the stock with a target price of Rs720.
HSIL Ltd: BUY| Target Rs510| Return 37%
HSIL Limited (HSIL) is an Indian company, which offers sanitaryware products, faucets, and glass bottles. The company’s 46 percent revenue comes from building products division, 43 percent from Packaging products division and balance from others division.
The market is expected to grow at 10 percent CAGR going forward on the back of increasing disposable income, urbanization, evolving preferences and government initiatives (Swachh Bharat, Housing for All, Smart cities, etc).
HSIL has expected to launch security caps and closures in 1QFY19, which would be able to generate revenue around INR130cr on the full operating basis (EBIT is around 20-25%).
Moreover, HSIL is also entering the PVC Pipe segment, which is expected to start commercial production around in FY19 (will be able to generate revenue ~INR400cr on peak utilization).
The company has entered into new segments like consumer, pipes and caps and closures which will drive the further growth. We expect HSIL to report net revenue CAGR of 12 percent to Rs2,905 crore over FY2017-20E.
On the bottom-line front, we expect CAGR of 15 percent to Rs154 crore over FY 2017-20E owing to improvement in operating margins. We recommend a Buy rating with a target price of Rs510.
Siyaram Silk Mills Ltd: BUY| Target Rs851| Return 41%
SSML has strong brands which cater to premium as well as popular mass segments of the market. Further, SSML entered the ladies' salwar kameez and ethnic wear segment.
Going forward, we believe that the company would be able to leverage its brand equity and continue to post strong performance. The company has a nationwide network of about 1,600 dealers and business partners.
It has a retail network of 160 stores and plans to add another 300-350 stores going forward. Further, the company's brands are sold across 3,00,000 multi-brand outlets in the country.
Going forward, we expect SSML to report a net sales CAGR of 12 percent to Rs1,981 crore and adj.net profit CAGR of 16 percent to Rs123 crore over FY2017-19E on back of market leadership in blended fabrics, strong brand building, wide distribution channel, strong presence in tier II and tier III cities and emphasis on latest designs and affordable pricing points.
At the current market price, SSML trades at an inexpensive valuation. We have a buy recommendation on the stock and target price of Rs851.
Achin Goel, Head of Wealth Management and Financial Planning at Bonanza Portfolio Ltd:
Future Consumer Ltd: BUY| Target Rs75| Return 39%
Group Company Future Retail’s (FRL), the retail network will provide Future Consumer a platform to customize and innovate its product offerings and drive sales.
We expect Big Bazaar and Easy Day to increase the total outlets from 235 and 538 in FY17 to 302 and 2,338 in FY20E respectively. We value FCL at EV/sales multiple of 2.2x to arrive at the target price of Rs 75, which is at a discount of 60% to the average sector multiple.
Time Technoplast: BUY| Target Rs219| Return 37%
We expect the company to maintain a strong top-line growth supported by a value-added product such as composite cylinders, MOX Film and IBC.
Operating profit will be benefited from low operating expenses and doubling the capacity of new product launches under the Value-added product such as MOX Film and composite cylinders would help register strong segment growth.
Value the company as an EV/EBITDA multiple, as current stock is trading at 12.2 multiple. We expect that the company will trade at EV/EBITDA multiple of 8.5x FY20E EBITDA. We have a buy recommendation on the stock with a target price of Rs219.
South Indian Bank: BUY| Target Rs30| Return 31%
South Indian Bank (SIB) delivered a mixed set of numbers for the quarter ended December 31, 2017. Hit by the higher operating cost and lower other income, SIB has reported a marginal three percent increase in its net profit to Rs 115 Cr for the third quarter of FY18, compared with the corresponding period in FY17.
However, the banks' asset quality for the quarter has improved significantly with a drop in GNPA by 17 bps QoQ, whereas its NNPA drop by 22 bps QoQ. Slippages during the quarter remained flat on a sequential basis at Rs 258 Cr.
We believe that stable NIMs, better operational efficiency, improving CASA ratio and good rural presence is helping SIB to deliver strong operating performance.
Furthermore, moderating corporate exposure, higher collateral based retail/SME lending, expected robust loan CAGR, would translate into healthy return ratios.
At CMP the stock trades at 0.85x its FY18E BV, and 0.77x its FY19E BV. We maintain our BUY rating on the stock with P/BV multiple of 1x on FY19E book value to arrive at target price of Rs 30 per share.
Sanghi Industries : BUY| Target Rs160| Return 36%
The company is expanding its capacity from 4.1 mtpa to 8.1 mtpa. This expansion will result in volume growth by over 70% in next 2 yrs & double its top-line from current levels.
EBITDA/ton for the company was Rs 687 in FY17; this is because of the low realization & higher transportation cost. Going forward we expect it to surge it to Rs 1,030 levels in FY20E due to increase in cement demand & better realization. EV/ton of USD 95 on FY20E to arrive at a target price of Rs 160/share.
Analyst: JK Jain, Head of Equity Research at Karvy Stock Broking
Aurobindo Pharma: BUY| Target Rs800| Return 43%
Aurobindo Pharma has been under tremendous selling pressure from the past few months owing to the overall bearish trend in the entire pharmaceuticals space.
The shorter-term chart structure of the stock indicates the formation of lower tops and lower bottoms. However, the longer term chart patterns indicate that the stock is consolidating in a wide range between Rs.500 - Rs.800 on weekly charts and is currently hovering around the lower end of the said trading band.
The stock has immediate supports pegged around Rs.520 - Rs.500 below which the next meaningful support zone for the stock lies around Rs.480 - Rs.470.
Whereas on the upside, the stock has its immediate supply zone around Rs.630 - Rs.650 crossing which a surge towards a potential upside target zone around Rs.780 - Rs.800 levels may also be seen in the counter.
Technical parameters like the RSI and ADX do not indicate a rosy picture for the stock at the current juncture. However, things may get better for the market leader in Semi-Synthetic Penicillins, if it manages to hold and sustain above the immediate support levels as mentioned above.
The monthly chart structure of the stock suggests the formation of cycles of higher highs and higher lows, which clearly indicates that the long-term chart structure is still bullish and the current decline in the price of the stock is a normal technical correction.
In the past, it has also been observed that every time the stock has made a cycle of higher low preceded by a higher high, it has always seen value buying from such levels, which gives investors with a longer-term horizon a brilliant break to go long in the counter at current levels with a stop loss placed below Rs. 430, for the aforesaid target levels in about a year’s time.Disclaimer: The views and investment tips expressed by investment experts 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.