Sunil Shankar Matkar Moneycontrol News
Bears are not in a position to give up their game fully since February barring few sessions, as the market fell 10 percent from its record high hit on January 29, 2018.
In fact, it has turned negative after Budget 2018, hitting fresh lows of the calendar year. Trend has been so negative-to-volatile that buyers strength has been declining day after day.
Everyone on the Street agreed that correction was long overdue after one-sided 35 percent rally from 2017 till January 2018.
There are several reasons that pulled down the Nifty by more than 1,100 points in one and half months.
To name few reasons which are major ones are long term capital gains tax imposition in the Union Budget, likely early & more than three Fed rate hikes in 2018, banking fraud and political uncertainties after TDP pulled out from NDA government.
As these are enough and additional reasons ahead of March quarter earnings, the Nifty is likely to breach 10,000 levels soon amid volatile trade, technical as well as fundamentals experts suggest.
According to them, it is a "sell on rally" market now. The Nifty is around 100 points away from its 10,000-mark.
"Indian stock markets continue to slide down due to uncertainty around the banking sector and current political situation given the election schedule this year. This has the potential to de-rail the sentiment & earnings growth for the next year," Hemang Jani, Head - Advisory, Sharekhan said.
While reiterating immediate target of 10,000 for Nifty, Jayant Manglik, President, Religare Broking said he feels correction could be steep on broader front thus suggest maintaining extra caution in midcap and smallcap space.
"Breach of the swing low confirms wave extension on the downside with key targets placed at 10,000-9,800," Gaurav Ratnaparkhi, Senior Technical Analyst, Sharekhan said.
Here is the list of 10 stocks that can give up to 76 percent return:
Brokerage: Prabhudas Lilladher
SBI | Rating - Buy | Target - Rs 341 | Return - 37%
Prabhudas Lilladher attended the SBI's subsidiaries day represented by chief executives of non-lending business and key RRBs. Key takeaways from the session were (i) Improve engagement with bank for cross sell & leverage bank's technology knowhow & reach (ii) Improve USP of each subsidiary to create niche visibility over next few years and (iii) Plans for unlocking value for each subsidiary.
Currently 7 percent of SBI's total fee income is contributed from cross sell of products of subs which SBI targets to increase the share by 3x in next few years, while key large subs contributed 20 percent of Bank's profits in FY17 and has substantially improved in FY18, we believe bank network synergies are yet to be exploited and could further improve market share for subs, adding higher value to the bank valuation.
In current SOTP (sum-of-the-part) of Rs 341 (reduced from Rs 350) we value subs at Rs 80 (up from Rs 74 on recent TP increase in SBI Life). We have tweaked FY18 & FY19 numbers on credit losses for the bank due to some impact from revised stressed asset guidelines but should also benefit from the resolution process from NCLT. Retain 'Buy'.
Brokerage: Motilal Oswal
Shilpa Medicare | Rating - Buy | Target - Rs 749 | Return - 53%
The receipt of establishment inspection report (EIR), with unchanged status – voluntary action initiated (VAI) – for the Jadcherla formulations facility from the USFDA is a positive.
The USFDA had inspected this facility over November 20-30, 2017. It had issued a form 483, with 10 observations.
Shilpa has only one formulation and resolution of the issues in the 483 was critical for its existing business and for future ANDA approvals. The issuance of EIR and status remaining unchanged at VAI implies that the inspection is closed successfully and will not be a show stopper for SLPA’s future approvals.
Currently, Shilpa has 31 ANDAs pending for approvals. On overall basis, we expect 16 percent CAGR in sales to Rs 1,200 crore and 35 percent CAGR in PAT to Rs 270 crore over FY17-20.
We re-iterate Buy with price target of Rs 749.
Hindustan Unilever | Rating - Buy | Target - Rs 1,515 | Return - 17%
Market demand has been improving gradually over the past few quarters. Encouragingly, growth has been broad-based across categories and regions.
Central India continues to do better than the rest of the regions for HUL, in line with the company’s strategy.
Although rural performance has improved substantially, rural demand growth is yet to reach the buoyant historical levels, when it was 1.5-2x of urban demand growth. Wholesale and CSD channels, which were lagging behind for many quarters, are now back to normal.
Tailwinds in terms of rural demand recovery, margin accretion due to further benefits of zero based budgeting (ZBB) and medium-term benefits of GST will also accelerate its earnings trajectory.
Adspend intensity in the market was almost flattish during the quarter.
Consequently, we expect 18.8 percent EPS growth over FY17-20, as against 6.1/10.6/10.7 percent EPS CAGR over the last 3/5/10 years. We maintain our Buy rating with a revised target price of Rs 1,515.
Brokerage: Kotak Securities
Dilip Buildcon | Rating - Buy | Target - Rs 1,217 | Return - 26%
We met with the management of Dilip Buildcon and NHAI official during their investor meet to get an understanding of upcoming opportunities in road sector and how DBL is expected to benefit from the same.
DBL has managed to bag orders worth Rs 13,900 crore in current fiscal till date and has mentioned that effective bidding is the key to win the projects and maintain margins.
Company is confident of maintaining similar trend in order inflows for FY19 too with improved execution.
We maintain estimates and target price of Rs 1,217 based on 20x FY20 earnings.
Brokerage: KR Choksey
Aarti Industries | Rating - Buy | Target - Rs 1,455 | Return - 28%
The company currently trades at two year forward P/E multiple of 20x. Going forward, we believe Aarti Industries should fetch premium valuations on account of 1) higher volumes aided by capacity addition plans; 2) bolstering demand from end user segments; 3) higher revenue visibility owing to multi-year deals; and 4) steady balance sheet despite higher capital requirements.
Accordingly, we value the company at a P/E multiple of 25x on FY20E and arrive at a target price of Rs 1,455 per share resulting into an upside of 27.6 percent from the CMP of Rs 1,140 per share. We assign a 'Buy' rating on the stock.
Going ahead, we estimate revenue/EBITDA/PAT to grow at 16/13/14 percent over FY17-FY20E. Further, we factor in a total capex of Rs 1,750 crore over FY18-FY20E for the capacity addition plans.
We expect the company to fund the same partially through debt and partially through internal accruals. Accordingly, we expect the total debt of the company to increase by Rs 350 crore with net debt/equity ratio to improve to 0.7x by FY20. Consequently we estimate return ratios to observe a drop in FY20 with ROCE/ROE to reach 18/19 percent by FY20 on account of ongoing capex plans.
Brokerage: ICICIdirect
Gujarat State Petronet | Rating - Buy | Target - Rs 200 | Return - 12%
Gujarat State Petronet's (GSPL) board has approved the acquisition of up to 28.4 percent stake in Gujarat Gas from GSPC. The transaction will involve acquisition of 3.9 crore shares and be a related party transaction between two government companies, thus, requiring no regulatory approval. Currently, GSPL has a 25.8 percent stake in Gujarat Gas.
The new acquisition will take the total stake to 54.1 percent making it a holding company of Gujarat Gas.
GSPL's transmission business is expected to report stable volumes in the backdrop of growth in the CGD and PNG sectors and increased LNG capacity in Gujarat.
In its last published public consultation document, GSPL proposed final tariffs of Rs 59.65/mmbtu (around Rs 2.1/scm) for 2017-18 to 2026-27 versus Rs 26.58/mmbtu (around Rs 1/scm) in 2016-17 for its trunk pipelines.
Hence, on the back of the same, we assume tariffs of Rs 1.35/scm for FY19. We value GSPL’s investments in CGD entities like Gujarat Gas (54.1 percent stake) and Sabarmati Gas (27.5 percent) at Rs 104 per share and standalone business at Rs 96 per share to arrive at a price target of Rs 200. We have a Buy recommendation on GSPL.
Brokerage: Khambatta Securities
Fourth Dimension Solutions | Rating - Buy | Target - Rs 294 | Return - 76%
Fourth Dimension Solutions has strong experience in executing e-governance and other projects for government agencies and PSUs. We expect FDS to benefit from various ICT initiatives and incremental IT spend of the central and state governments going forward.
FDS has plans to raise fresh capital through the issue of equity shares and convertible equity capital to the tune of Rs 350 crore. The equity infusion will support strong business growth for the company over the next few years.
FDS’s margins are quite low reflecting hardware reseller margins. As the company’s projects move into the “go-live” phase, we expect the share of higher-margin service revenues to increase resulting in healthy overall margin expansion.
FDS is now eligible to directly bid for public projects up to Rs 1,000 crore in value. This will help drive growth while supporting margin expansion. FDS’s partnership with French software major Dassault Systèmes and initiatives to enter the IT exports market will help the company move up the IT services value chain and contribute incremental revenue.
Based on a target P/E multiple of 18, we value FDS at Rs 294 with an upside potential of 76 percent and informing a Buy rating.
Brokerage: CD Equisearch
Supreme Industries | Rating - Accumulate | Target - Rs 1,416 | Return - 18%
Prodded by higher margins and fall in financial expense, Supreme’s earnings would perhaps grow at the fastest pace since fiscal ended March 2016. Higher allocation to government sponsored schemes like AMRUT, PMAS and others, demand for both agri and non-agri pipes would patently get a boost.
Yet severe fluctuations in polymer prices and its trickle effect on margins are not worthy of being ignored. Revival in hardly belittling plastic piping business, earnings would vigorously
resurrect next fiscal.
On balance, we maintain our accumulate rating on the stock with revised target of Rs 1,416 (previous target: Rs 1,289) based on 38x FY19e earnings over a period of 6-9 months (forward peg ratio cut to 1.4; four year historical P/E (FY18 included): 33x).
Brokerage: Reliance Securities
Federal Bank | Rating - Buy | Target - Rs 150 | Return - 65%
The bank is expected to deliver further improvement in operational performance led by improving loan book growth and improving assets liability mix. Advances grew by 5.3 percent QoQ to Rs 85,000 crore in Q3FY18, as SME, wholesale and retail (including Agri) book grew by 13.3 percent, 4.4 percent and 6.85 percent QoQ respectively.
Further, continued moderation in SMA-2 balance clearly suggests fresh slippage will show declining trend in FY19. Notably, the Bank is gradually coming out of the scenario marked with higher provisioning and continued stress on asset quality for last few quarters. Management expects credit cost to remain in comfortable level of 60-70bps in FY19.
Looking ahead, we expect the strong traction in earnings to continue owing to robust growth in loan book, moderate credit cost and healthy margins.
We expect the bank’s earnings to witness 33 percent CAGR through FY17-20E and reiterate Buy recommendation on the stock with an target price of Rs 150 based on 2.3x FY19E adjusted book value.
Brokerage: CESC Research
Rane Holdings | Rating - Buy | Target - Rs 3,183 | Return - 20%
Rane Holdings' revenues are estimated to grow at 18 percent CAGR over the next two years. Upsurge in OEM volumes coupled with focus on the Aftermarket segment would drive the top-line.
Also, the company’s margins are expected to improve on account of operating leverage, enhanced local procurement and energy savings.
Given the healthy top-line growth and margin improvement, RHL’s earnings are likely to grow at a CAGR of around 22 percent over FY18-20. Its return ratios are also estimated to expand due to margin improvement and reduction in leverage.
At CMP, the stock is trading at 19/15.8X FY19/20 EPS. We initiate coverage on Rane Holdings with a Buy recommendation and target price of Rs 3,183, valuing the stock at 19X FY20E EPS.
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