July series so far has not been very rewarding for traders. The benchmark indices started the month on a negative note jolted by some unfavourable proposals by the Finance Minister in the Union Budget and then dived further.
Nifty has slid nearly 1.7 percent since the beginning of July series till July 15. In the same period, Sensex trimmed 1.26 percent.
The Finance Minister in her budget proposals said India had all the ingredients to become a $5-trillion economy. However, higher taxes on the super-rich and the absence of short-term measures have hurt the D-Street sentiment and has wiped more than Rs 3 lakh crore worth of investor wealth since the Budget.
The average market capitalisation of BSE-listed companies fell from Rs 151.35 lakh crore recorded on July 5 to Rs 148.09 lakh crore seen on July 15, which translates into an erosion of Rs 3.26 lakh crore.
So far in the July series, Nifty Midcap has wilted 3.66 percent, while Nifty Smallcap has fallen 2.69 percent.
Despite the hangover induced by the Union Budget, various brokerages initiated coverage on these 10 stocks in July and projected 17-46 percent return in near to mid-term.
Brokerage: Ventura
ICICI Bank: Buy | Target: Rs 566 | Return: 34 percent
After Sandeep Bakshi's elevation to CEO, there have been significant positive changes in ICICI's strategy with regards to growth and risk mitigation. This renewed focus, along with the brisk growth, improving asset quality and benign valuation (w.r.t peers) provides a heady concoction for a re-rating.
On the back of robust lending, we expect NII to grow at 13 percent CAGR to Rs 38,964 crores by FY22 with NIMs expanding by 18 bps to 3.4 percent, driven by improving yields and relatively flat cost of funds.
RITES: Buy | Target: Rs 365 | Return: 27 percent
Nirmala Sitharaman, in her Budget speech, maintained railways' capex at Rs 1.58 lakh crore. This exponential thrust on infrastructure spend will likely benefit RITES.
RITES acts as a consultant to Indian Railways and is also their exclusive exporting arm providing rolling stocks to countries such as Thailand, Malaysia and Indonesia.
Also Read: As railway capex skyrocket, here's why RITES may be right pick after Budget
With a very low capex requirement (Rs 300 crore over the next 3-4 years) and strong operating cash flow, we expect RITES to sustain a healthy payout ratio of more than 40 percent while keeping the balance sheet healthy.
Brokerage: Elara Capital
APL Apollo Tubes: Buy | Target: Rs 2,267 | Return: 46 percent
The company is well placed to continue strong momentum on the back of industry-leading capacity of 2.3mn tonnes, low-cost structure, acquisitions of Taurus & Apollo Tricoat and pan-India presence with a broad distribution network.
Also Read: After a 435% return in 5 yrs, has APL Apollo Tubes run out of steam?
We expect ROE to expand to 24.1 percent and RoCE to grow to 26.8 percent over FY19-21E. Meanwhile, revenue CAGR and EPS CAGR will be 21 percent and 49 percent, respectively, led by improved efficiency, better product portfolio and likely reduction in the net debt-equity ratio to 0.4x in FY21E from 0.8x in FY19.
DCB Bank: Buy | Target: Rs 276 | Return: 17 percent
DCBB derives its strength from loans. The bank’s core credit yield (adjusted for mandated credit risk, credit cost and credit risk weight) has been robust across business cycles and improved recently.
We believe return ratio drivers would be margin expansion due to negative ALM gap in a declining interest rate scenario and improved opex-asset ratio. We estimate ROAA at 1.0-1.1 percent and ROAE at 12.2-13.8 percent over FY20-21E.
Brokerage: JM Financial
Metropolis Healthcare: Buy | Target: Rs 1,240 | Return: 19 percent
Metropolis is India’s third largest clinical laboratory service provider by revenue. Through its evolved network of patient and institutional touchpoints, Metropolis offers a comprehensive range of clinical laboratory tests and profiles.
Its focus on building scalable operations with high standards of delivery and processes positions will help it in taking advantage of multiple industry tailwinds including robust growth in the healthcare delivery market and a shift in the market structure in favour of organised players.
Finolex Cables: Buy | Target: Rs 485 | Return: 27 percent
Finolex Cables is the third largest manufacturer of electrical and telecommunication cables. It counts among its strengths a diversified product portfolio, wide distribution reach, backward integration to manufacture key cable components like copper rods and its cash and carry business model due to higher B2C mix.
We expect Finolex cables to deliver a PAT CAGR of 12 percent during FY19-2E, with core ROE remaining solid at 32 percent (akin to consumer companies). We initiate coverage on it with a BUY rating assigning a TP of Rs 485 per share valuing it at 17x FY21E EPS.
Brokerage: Quantum
KDDL: Buy | Target: Rs 560 | Return: 42 percent
Ethos, the luxury watch retail arm of the company, has seen higher gross margins on its brands that have been assisted by low leveraging and low depreciation.
The company is now set to enter the high-end market given the huge growth in the super-luxury segment. It also plans to add 7-8 stores per year in FY20 and FY21.
Brokerage: BOB Capital
Alkem Labs: Buy | Target: Rs 2,100 | Return: 19 percent
Alkem Labs is a midsized pharma company ( $1 billion sales) with India and the US as key markets. It is the market leader in several key acute segments in India.
Despite regulatory challenges, the company continues to deliver a healthy 8 percent volume growth in leading brands in the domestic market. Also, launches and stable pricing are expected to lift US margins and fuel ROCE turnaround.
We believe a recovery in Alkem’s India business profitability and rising US operating leverage would revive earnings to a 22 percent CAGR over FY19-FY21 (after a weak FY17-FY19).
Brokerage: Way2Wealth
Blue Star: Buy | Target: Rs 899 | Return: 20 percent
Since entering into the room air-conditioner category in FY11, Bluestar has outperformed the industry by garnering 12.3 percent of market share.
We continue to see Bluestar grow on the back of an increasing distribution network, rising market share and a trend of higher proportion of sales moving towards inverter ACs.
Further, growth is aided by a scale-up in commercial refrigeration products and a turn around in the water-purifier business.
With the priority of the current stable government towards infra space, we are likely to see improvement in margin profile (+170 bps) enabling earnings CAGR growth of 30 percent over FY19-21E.
Brokerage: Indsec Securities
Insecticides (India) Limited: Buy | Target: Rs 806 | Return: 24 percent
Insecticides (India) Ltd is India's leading agrochemicals manufacturing company that has a product portfolio of more than 100 formulation and 21 plus technical products.
The company has historically been trading at 1 year forward P/E band of 16x. Its continued focus on its R&D efforts and tie-ups with global players to market and launch new innovative products along with cost optimisation efforts would drive its overall growth going forward.
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