10 largecap top investment ideas for 2013: Emkay

Emkay Global Financial Services has come out with its report on conviction ideas.

Cadila Healthcare: We expect Cadila to report 22% revenue growth in FY13 and 16% growth in FY14. We expect EBIDTA margins to move from 20.4% in FY12 to 21% in FY13 and FY14. Earnings will grow by 22% CAGR over FY12-14E. Maintain Buy with a target price of Rs1000 (20xFY14E EPS). At current price, the stock trades at 21x FY13E EPS of Rs40 and 17x FY14E EPS of 50.

Colgate-Palmolive: Construct of Colgate is synonymous to Glaxosmithkline Consumer (which trades at 30x 1-year fwd earning) due to 1) majority of revenue comes from single category; 2) pricing power; 3) market leadership. We have price target of Rs1400/Share (30x FY14E earnings).

Dr Reddy: We expect Dr. Reddy to report revenue CAGR of 21% over FY12-14E. Base earnings will grow by 22% CAGR over FY12-14E. Recommend Buy rating on the stock with a TP of Rs2240. At CMP, the stock is trading at 18x FY14E EPS of Rs. 112.

HCL Technologies: We continue to back HCL Tech on upside risks to street (including our’s) earnings estimates. HCL Tech currently trades at ~14x/13.5xFY13/14E P/E.

Hero Motocorp: While near term concerns on the two-wheeler industry volume growth remains, we believe that earnings growth for HMCL will be driven by margins improvement in FY15 and the stock is a good investment opportunity on a 12-18 month view. The stock also trades significantly cheaper than Bajaj Auto.

ICICI Bank: We expect the bank to witness 19% CAGR in NII / customer assets each over FY12-14E. Improvement in margins with easing credit cost pressures would aid RoA performance. Any material spike in restructured loan portfolio remains key risk in near term. Maintain positive bias.

NMDC: At the CMP of Rs 162, the stock is available at 8.2xFY14 EPS and 4.7xFY14 EV/ EBITDA against current global valuation of 9.7xCY13 (FY14) PE and 5.9xFY14E EV/ EBITDA for pure play iron players . Also the EV/ tonne of US$10/ tonne looks very attractive on the basis of reserves adjusted for Fe content compared to more than US$20/ tonne for its comparable peers. We believe, based on its strong fundamentals NMDC deserves a premium over its peers and our observation reveals that in the past two years, NMDC has been trading at an average EV/EBITDA of 8x. We however value the company at 6xFY14 EV/ EBITDA, at par with the current average global multiple. On this basis we arrive at a fair value of Rs 196/ share. Recommend BUY.

PGCIL: Stock trades at 11xFY14E EPS and 1.6xFY14E Book. We believe PGCIL is an earnings Growth (17% during FY12-15E) as well as a re-rating story (trades at 11x FY14E, could re-rate to market multiple 13-14x). Re-rating Reasons – 1) Superior earnings growth visibility and certainty (strong certainty of 17% earnings growth during FY12-FY15E, as regulated business model with solid ROE and huge capitalization lined up), 2) Strong management (Mr. RN Nayak, CMD will remain in office until Sep 2015) and 3) stock at 20% discount to broader market and 10% discount to NTPC despite superior earnings growth and certainty. Recommend Buy with PT of Rs136/sh

Tata Motors: We expect that the successive launches of the RR and RR Sport, along with the launches in the Jaguar platform will help improve the realizations and profitability for the company and likely surprise positively. Emkay’s earnings forecast are Rs 42/share and Rs 48/share for FY14E and FY15E respectively, a strong 19% CAGR going ahead.

Zee Entertainment: Consolidated revenue is expected to grow at 17.8% CAGR (FY12-15E), EBITDA and PAT is expected grow at a CAGR of 25% over FY12-15E, reduction in carriage charge could emerge as an additional benefit for Zee in the long run. We recommend BUY with TP of Rs275, discounting our FY14 and FY15 earnings by 30x and 22.6x respectively.

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