Fireworks on D-St! Top 10 stocks to buy which could give up to 50% return till next Diwali 2018

Insight 18 | Samvat 2074: The Story Behind Muhurat

For Samvat 2074, analyst advises investors to carefully select picks which could create wealth and at the same time provide stability at the time of volatility. The portfolio should be well balanced and provides superior returns, without any unnecessary risk.

The market will remain stock specific and investors should tone down their expectations from the S&P BSE Sensex or Nifty for the next 6 months at least. Amid global and domestic headwinds, benchmark indices are unlikely to repeat performance of H1.

"Given the return for the first half of the year, investors might want to tone down their expectations for the remaining year. Definitely, the market is trading ahead of its fundamentals in case of few sectors, and waiting for signals of earnings improvement from the corporate sector," Arvind Vinjamoori of Karvy Stock Broking told Moneycontrol.

"There is rather a bleak chance that earnings could revive in next half of the year as we are still in early stage of capex cycle and capacity head-rooms are still at significant levels. We may witness a range bound trading for Nifty in the range of 9,700-10,100 in the next 6 months," he said.

Here is a list of 10 stocks which investors can look at buying with a holding period of 12 months:

Brokerage Firm: IDBI Capital

Bata India: BUY| Target Rs925| Return 25%

Bata (BATA) has four strategically located manufacturing units with a production capacity of 21mn pairs of footwear per annum. The shift from basic-need-based category to evolving-fashion is visible in same stores sales growth (SSSG).

BATA’s retail business, which is more than four-fifths of revenue, grew by 15 percent. Thanks to 10 percent SSSG in Q1FY18, the additional flip in revenue could come from new store addition.

If the current trend is to sustain, the revenue and PAT could grow at a CAGR of 12 percent and 24 percent over the next two fiscals. The stock, however, is trading at 52.2x its FY2019E earnings. Yet this does not capture the earnings growth potential.

Cyient Ltd: BUY| Target Rs645| Return 27%

Cyient Limited, formerly Infotech Enterprises Limited, is engaged in providing software-enabled engineering and Geographic Information System (GIS) services.

Cyient’s FY18 outlook includes double-digit growth for the services business, over 20 percent growth in DLM and operating margin improvement of 50bps YoY.

We are confident that Cyient would achieve the same and expect it to outperform the sector and forecast FY17-19E revenue (US$)/EPS CAGR of 13%/13.9%.

We are confident of improvement in EBIT margin from Q2 and forecast FY18 EBIT margin to improve by 30bps to 11.1 percent.

L&T: BUY| Target Rs1425| Return 25%

Larsen & Toubro Limited (LT) is a technology, engineering, construction, and manufacturing company. The Company's segments include activities of Power, Infrastructure, Electrical & Electronics, Engineering Construction, Metallurgical & Material Handling.

More than seven decades of a strong presence, customer-focused approach and the continuous quest for world-class quality have enabled it to attain and sustain leadership in all its major lines of business.

IDBI Capital forecasts 12 percent CAGR in revenues till FY19. We anticipate a strong margin recovery through power, heavy engineering, electrical and automation and IDPL.

Thereby, the brokerage house believes that EBITDA should grow by 20 percent CAGR over the next two fiscals.

Manappuram Finance: BUY| Target Rs142| Return 41%

Manappuram Finance Limited is an NBFC with second highest AUM as regards Gold loans (Rs107 bn) in the listed space. It has also been growing its presence across Microfinance, Housing Finance, Vehicle Finance and other aspects of consumer finance.

Specialised NBFCs have operational advantages over banks, and as a consequence, they continue to win market share. The shift from the unorganised sector to organized sector is expected to gain traction due to Aadhaar, Jan Dhan, and demonetisation.

Also, the long-term outlook for gold prices remains steady. Valuation: The stock is trading at P/BV of 2.1x/1.9x FY18/19E with a strong RoE of 22 percent.

Mahindra Holidays & Resorts: BUY| Target Rs520| Return 52%

Mahindra Holidays & Resorts India Limited (MHRIL) operates in leisure hospitality industry. The Company is engaged in the business of sale of Vacation Ownership and other related services in India.

The Company's principal activities include income from the sale of Vacation Ownership (VO); annual subscription fee from VO members, and income from the sale of food and beverages.

MHRL strategic focus continues to be acquiring rooms on the lease. This has helped the company to clock revenue in excess of Rs11bn. We anticipate 9 percent revenue CAGR in VO income for years to come.

Also, MHRL could gain 19 percent revenue CAGR in resorts and ASF over the next two years. With cost control and better quality of members, the stock promises a brighter outlook.

Brokerage House: Angel Broking

Dewan Housing: BUY| Target Rs650| Return 19%

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.

Angel Broking expects 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 1.6x FY2019E ABV. The brokerage house maintains an Accumulate rating on the stock, with a target price of Rs650.

Karur Vysya Bank (KVB): Accumulate| Target Rs180| Return 26%

KVB had a fairly strong loan CAGR of 14.9 percent over FY11-17.However, FY17 was the year of consolidation and loan book grew by only 4.7 percent. We expect loan growth to pick up to 11% over FY17-19. Deposit growth is expected at 9% during the period.

Angel Broking expects KVB to post a strong loan book & earnings CAGR of 11 percent & 22 percent over FY2017-19E. The stock currently trades at 1.4x FY2019E ABV. The domestic brokerage firm has a BUY rating on the stock, with a target price of Rs180.

Asian Granito: BUY| Target Rs570| Return 17%

AGIL's current, vitrified sales (35%) are lower as compared to its peers like Somany Ceramics (47%) and Kajaria Ceramics (61%).

Recently, AGIL has launched various products in the premium segment. Going forward, AGIL's profit margin may improve due to increase in focus for higher vitrified product sales, which is a high margin business.

Angel Broking expects AGIL to report a net revenue CAGR of 9.9 percent to Rs1,286 crores and net profit CAGR of 23 percent to Rs59 crores over FY2017-19E. On the EV/Sales, AGIL is trading at 1.2x compared to 3.2x of Kajaria Ceramics.

Blue Star: Accumulate| Target Rs850| Return 6%

Blue Star Ltd (BSL) is one of the largest air-conditioning companies in India. With a mere 3 percent penetration level of ACs compared to 25 percent in China, the overall outlook for the room air-conditioner (RAC) market in India is favourable.

Aided by increasing contribution from the Unitary Products, we expect the overall top-line to post a revenue CAGR of 19 percent over FY2017-19E and margins to improve from 5.8 percent in FY2017 to 6.6 percent in FY2019E.

TV Today Network (TTNL): BUY| Target Rs402| Return 12%

TTNL enjoys a strong viewership ranking in the Hindi and English news channel categories. The company’s Hindi news channel – Aaj Tak has maintained its market leadership position occupying the No.1 rank for several consecutive years in terms of viewership.

The English news channel - India Today too has been continuously gaining viewership; it has now captured the No. 2 ranking from No. 4 earlier. Its other channels like Dilli Aaj Tak and Tez are also popular among viewers.

Angel Broking expects TTNL to report a net revenue CAGR of 9 percent to Rs727cr and net profit CAGR of 14 percent to Rs121cr over FY2017-19E.

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