Here are 10 stocks where brokerages initiated coverage in August with a buy rating:
After its worst July in 17 years, the Indian stock market failed to gather momentum stepping into August as well.
Dwindling foreign portfolio investments and weak earning season weighed on investors, who were cautious in their approach. Unfavourable economic outlook, sub-par monsoon and trade tensions between the US and China worsened the sentiment.
Despite the gloom, brokerages see a few diamonds in the dust with a potential of returning 16-96 percent.
Ten stocks where brokerages initiated coverage in August with a buy rating:
Brokerage: Elara Capital
NTPC | Target: Rs 157 | Return: 32 percent
The stock of the company has underperformed by 30 percent in the past 24 months on declining plant load factor (PLF) due to lower demand and under-recovery at a few plants.
Expect improvement in fundamentals to further correct the under-recovery which has steadily declined from Rs 1,400 crore in FY18 to Rs 800 crore in FY 19.
"NTPC can focus on improving supply from its captive coal mines to 5mn tonne annually and likely higher imports of 3mn tonne can lower under-recovery significantly in FY20E, resulting in higher earnings by 5 percent in FY20E."
Capacity additions of 15GW, which is under construction and is likely to be commissioned by FY22, along with an increased focus on captive mining and fuel security will further drive growth, says Elara.
Tata Power | Target: Rs 79 | Return: 38 percent
The brokerage expects a potential resolution at Mundra Coastal Gujarat Power (CGPL) to be a key trigger for the stock.
"Tata Power's stock performance has been lacklustre at 40 percent over the past three years on account of Mundra tariff issue and volatile coal prices. A sizeable fall in prices of imported coal would help the company reduce losses at Mundra, although at cost of declining profitability from Indonesia coal mines," says Elara.
The company has also been dipping its toes in the renewable energy (RE) space. It recently acquired assets of Welspun Renewable Energy, which increased its capacity from 1.2GW on March 31, 2017 to 3 GW on March 31, 2019.
The brokerage expects the increased capacity to contribute 35 percent to overall EBITDA in the medium term.
Also, the company's focus on deleveraging via stake sale in Tata Projects, global power assets and the sale of defence business shall also drive stock prices, says Elara.
Torrent Power | Target: Rs 348 | Return: 22 percent
The company is all set to double its RE capacity from 700 MW to 1.4 GW by FY21E.
"RE assets are at a profitable feed-in tariff (FIT) capacity, earning a healthy double-digit internal rate of return (IRR), and newly bid projects could yield a 12-14 percent equity IRR."
Moreover, a substantial fall in LNG prices and the company's ability to make capital expenditure of Rs 6,500 crore shall drive valuations going forward.
PTC India | Target: Rs 84 | Return: 44 percent
According to Elara, the stock has underperformed by 40 percent over 24 months, plagued by problems related to investment in PTC Financial Services, a subsidiary in which it has a 65 percent stake.
The company could unlock this potential by exiting certain investments, says the brokerage.
"PTC India intends to monetize investments in PTC Energy and Teesta Urja hydro project. Further, the company has agreed to dilute its 65 percent stake in PFS. If we were to assume Rs 6 crore likely valuation for PTC Energy, it would fetch around Rs 1,700-1,800 crore, thereby resulting in derisking of the core business."
The brokerage also expects PTC's strong competitive advantage and a proposed power-purchase agreement to further boost its share price.
Brokerage: ICICI Direct
IDFC First Bank | Target: Rs 54 | Return: 19 percent
In December 2018, IDFC Bank and Capital First merged to form a new entity, IDFC First Bank, to strengthen its retail franchise.
The brokerage expects IDFC's "new avatar" to improve margins from 3 percent in FY19 to 4.5 percent in FY23E. It also expects gross advances to grow at 10 percent CAGR in FY19-23E to Rs 1,62,880 crore, with faster retail traction at 27.2 percent CAGR to Rs 1,06,850 crore. Thereby, raising its proportion from 35 percent in Q3FY19 to 65.6 percent in FY23E.
It also foresees the company's new management under V Vaidyanathan, who has a proven track record at Capital First, to grow retail asset base at a healthy pace with an eye on quality.
"The building of sustainable liability franchise would act as a catalyst to support valuations. "
Brokerage: Reliance Securities
Aarti Industries | Target: Rs 1,857 | Return: 18 percent
Reliance Securities expects Aarti's substantial lead in benzene derivatives, both in global and domestic markets, to drive growth.
The brokerage also foresees its foray into toluene business to "replicate the heroics of benzene".
"The move augurs well as India is the net importer in the toluene value chain and domestic players are well-placed to thrive merely by substituting imports," it says.
Reliance Securities further expects Arti's substantial capital expenditure to tap long-term growth potential.
NCC | Target: Rs 120 | Return: 96 percent
NCC's FY20 growth prospects were disrupted after the YS Jaganmohan Reddy-govt either cancelled or put for review the projects awarded to the company in Andhra Pradesh.
Nonetheless, the brokerage expects new order prospects of NCC’s core segments to remain robust
"Expressway projects worth Rs 92,000 crore are at various stages of tendering, metro projects with civil construction opportunity of Rs 30,000 crore are likely to be bid over the next 12 months and affordable housing (under PMAY) has ordering potential of Rs 40,000 crore over the next 12- 18 months," said Centrum.
The brokerage also expects government’s re-energised focus on water to enhance opportunities in water transport, distribution and storage, one of NCC’s core capabilities.
Brokerage: Prabhudas Lilladher
Bajaj Finance | Target: Rs 3,860 | Return: 16 percent
The brokerage sees the company "in a sweet spot" given its unparalleled ecosystem in consumer lending along with a strong brand, distribution and technology.
"We initiate coverage on BAF, given its formidable franchise in consumer financing, strong growth momentum in rural finance and an expected uptick in mortgage business post spin-off in step down subsidiary," says the brokerage.
Bajaj Finance has also emerged unfazed from the recent NBFC rut as it clocked less than 2 percent gross NPA. Provision coverage ratio across cycles stood at 65-70 percent.
Brokerage: SPA Securities
Amber Enterprises India | Target: Rs 1,040 | Return: 25 percent
According to the brokerage, Amber Enterprises will benefit from the government's continued focus on 'Make in India' campaign.
In the budget, the government proposed increasing custom duty on in-door units (IDUs) & outdoor units (ODUs) to 20 percent from 10 percent.
This means that air conditioners of foreign brands will become much more expensive. This will help AEIL, a leader in OEM/ODM segment with 55 percent share, to further strengthen its grip on the market.
SPA also says that recent acquisitions will add 41 percent of revenue (standalone) by FY21 compared to 26 percent in FY19.
Brokerage: Anand Rathi
Tata Consultancy Services | Target: Rs 2,510 | Return: 16 percent
The brokerage expects India's most valued company to post double-digit revenue growth in FY20 on the back of multiple moats, including strong total contract value wins, improving year on year growth in BFSI, all-around vertical growth and rising digital revenue, among others.
"In the forthcoming years, digitalisation and scalability of the IT industry in the low penetrated geographies of the world will aid growth," says Anand Rathi.Disclaimer: The views and investment tips expressed by brokerages 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.The Great Diwali Discount!
Unlock 75% more savings this festive season. Get Moneycontrol Pro for a year for Rs 289 only.
Coupon code: DIWALI. Offer valid till 10th November, 2019 .