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Last Updated : Dec 28, 2018 08:04 AM IST | Source: Moneycontrol.com

Why Anand Rathi feels these 2 crucial factors could decide market’s next direction

Markets will now look for further cues from the third quarter earnings season starting in January. The budget will also be closely followed

Moneycontrol Contributor @moneycontrolcom
 
 
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Siddharth Sedani

Ailing global cues, vacillation over partial US government shutdown and hike in the US Federal Reserve rate have all contributed to the free fall of the markets globally. The Indian market also witnessed the swings and has remained volatile.

The Indian equity markets outperformed the global markets in December 2018, aided by lower oil prices, the government’s recapitalisation measure and Reserve Bank of India’s liquidity-boosting efforts. Though there is some nervousness amid weak global factors.

Markets will now look for further cues from the third quarter earnings season starting in January. The budget will also be closely followed and the markets may act cautiously if the government takes populist measures to woo voters ahead of 2019 general elections which may lead to a fiscal deficit.

We believe investors can accumulate/buy good quality companies on dips. Some of the stocks we are bullish on are :

Petronet LNG | Target: Rs 269

Petronet LNG Limited (PLNG), one of the fastest growing companies in the Indian energy sector, it has set up the country's first LNG receiving and regasification terminal at Dahej, Gujarat, and another terminal at Kochi, Kerala.

In terms of financials, the company has reported a growth 38.3% in its revenues in Q2-FY19 at ₹107,453 million as against ₹77,702 million. The growth was mainly due to higher regas volume processed with an increase in regasification capacity at Dahej.

On its capacity expansion at Dahej, the company has completed a majority of the work and is expected to be commissioned by Jun-19. With this, the total capacity for Dahej terminal would be 17.5 MMTPA. While the Kochi pipeline work is ongoing well and Mangalore section of the pipeline is expected to be completed in the next three months.

In overseas expansion plans, the company’s project in Bangladesh with a capacity of 7.5 MMPTA and a 100 percent offtake sovereign guarantee from the government is under finalisation of contract stage.

We see a shift in LNG market towards short-term contracts and away from long-term contracts which we believe could be positive for incumbent players as new players with lower long-term evacuation contracts may increase financing costs and in turn lower project viability.

Increase in gas-based consumption and a higher share of gas in energy towards 15% augurs well for long-term growth in the sector, At CMP the stock is trading at 14.4x times FY19E earnings and 12x times FY20E earnings. We recommend a BUY on the stock with a target price of ₹269 per share.

Finolex Cables | Target: Rs 598

We like Finolex Cables due to its leading position in electrical and communication cables. Its strong brand equity, all-India distribution network, robust balance sheet and free-cash-flow generation would help it diversify into electrical goods, a large market with ample growth opportunities.

Inventory at end-Q2 increased slightly (by 4 days), perhaps due to lower sales during the quarter, while receivable and payable days were steady. We believe this to normalise with rising sales. The company continues to be debt free.

The huge cash balance (~Rs 11bn, non-strategic) may help it expand inorganically or reward shareholders in some way.

We lower our earnings estimates and now expect revenue/PAT to clock 11/21 percent CAGRs over FY18-20 with a 60bp compression in the EBITDA margin owing to rising costs. We maintain our Buy recommendation with a lower target price of Rs 598 (19x FY20e EPS)

Larsen & Toubro Technology Services | Target: Rs 2,042

L&T Technology Services Limited (LTTS) is one of the three listed subsidiaries of Larsen & Toubro Ltd. The company provides design and development solutions to clients across the entire value chain of product development. These include solutions in the areas of mechanical and manufacturing engineering, embedded systems, software engineering and process engineering.

For new-age technologies, it provides services and solutions in the areas of product lifecycle management, engineering analytics, power electronics, M2M connectivity and IoT.

During the latest quarterly results, the company has reported robust growth in revenues, it grew 27.1 percent in Q2-FY19 to $177.2 million as against $168.9 million in Q2-FY18. The operating margins for the company stood 18.1% at Rs 2,289 million against 17 percent in Q2-FY18 and PAT margins at 15.1 percent to Rs 1,910 million against 17.1 percent in Q2-FY18.

On guidance front, the management has guided of achieving 20% plus growth in revenues for the current year with strong growth coming from all the major segments while maintaining margins at currents levels.

With the rise of enabling technologies like 5G, IoT, Artificial Intelligence etc, the digital disruption now has expanded to almost each and every part of the global industrial complex including manufacturing and process industries. This has opened a new and bigger opportunity of more than $1.1 trillion markets for engineering outsourcing market.

We believe LTTS is one of the better-placed company with significant exposure to this market providing better growth prospects for the company.

At CMP the stock is trading at 28.6x FY19E and 23.7x FY20E earnings. We recommend BUY on the stock with a target price of ₹2,042 per share.

The author is Vice President - Equity Advisory, Anand Rathi Shares and Stock Brokers.

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on Moneycontrol are their own, and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
First Published on Dec 28, 2018 08:04 am
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