The S&P BSE Sensex plunged over 1,000 points, while Nifty shed a little over 300 points from their respective record highs weighed down by ongoing concerns over economic growth, geopolitical tensions, valuations as well as persistent selling by foreign investors.
Traders might not like the current volatility in the market but for long-term investors, it is a golden opportunity to buy into quality stocks for a minimum holding period of 1 year.
Corrections are part of every bull market and investors should not be overly worried about the ongoing decline which most experts feel could take the Nifty towards 9700 or below before the market bottoms out.
“Market movement will be fast and swift. We see a sideways type of correction but would take a longer time to correct the excesses. The good thing about the current state of Market is that the leverage positions are not excessive and therefore deeper cuts in prices look unlikely,” Jimeet Modi, CEO, SAMCO Securities told Moneycontrol.
“Beginning of rupee depreciation due to the Fed unwinding of the balance sheet is the biggest macro threat for the Indian market,” he said. Sectors such cement, housing finance, NBFCs, consumer durables are trading at overstretched valuations.
We have collated a list of stocks from various brokerage firms which investors can look at buying on dips for a minimum holding period of 12-months:
Mahindra & Mahindra: BUY| Target Rs 1586| Return 25%
Arihant Capital Market maintains a buy rating on M&M with a target price of Rs 1586. New Launches and transformation to electric vehicles to boost M&M revenues Mahindra & Mahindra August sales were up 3.75 percent at 42,116. Its tractor sales were up 22 percent at 16,516 in August.
With the move towards developing all-electric vehicles till 2030, M&M launched first e – rickshaw named e–alfa. M&M is expected to improve its sales with all-new segments of EV’s.
We expect a strong bounce back in Q2FY18 onwards on account of expected demand revival from rural India, Government’s strong focus on the rural economy, EV vehicles and favourable monsoon helping agri industry and rural UV sales.
Though present product pipeline is lean, the company plans strong product pipeline over FY18 & FY19. Economic revival with new launches would help company clock double-digit growth in FY18 & FY19.
DCB Bank: BUY| Target Price Rs 218| Return 19%
Arihant Capital Market maintains a buy rating on DCB Bank with a target price of Rs 218.
The bank has strong CASA growth & Focus on better asset quality to boost Profitability. DCB Bank is one of the emerging private sector banks in India. The services offered by the bank include Personal Banking, Corporate banking & NRI Banking.
DCB Bank Ltd. reported strong growth for the Q1FY18 quarter. Operating Profit came in at Rs.136 crore for Q1 FY18 as against Rs. 93 crore in Q1 FY17 registering robust growth of 47 percent.
The brokerage firm is of the view that the bank is in growth trajectory with a continued focus on retail and SME segment customers.
On the back of strong CASA growth and better asset quality ahead, the bank will be able to maintain its current NIM levels. The company has set a target to bring down Cost to Income ratio to 55% by end of next FY.
Tata Global Beverage: BUY| Target Rs 280| Return 42%
Arihant Capital Market maintains a buy rating on Tata Global Beverages with a target price of Rs 280. Tata Global Beverages Ltd has a portfolio of five brands in the domestic market namely Tata Tea, Tetley, Kanan Devan, Chakra Gold, and Gemini.
After N Chandrasekaran took over as chairman of the Tata Sons and restructuring activity started with the selloff of loss-making operations in China and Russia. Total debt is 785cr and company can directly reduce its debt with cash that received from stake sell.
Inter-company stake selloff will lead to huge cash inflow which will be used for debt reduction and margin will improve and expected robust growth in the overseas market is likely to lead to P/E re-rating.
Present TTMEPS is 6.5 and company can grow its earning at the rate of 15% for next 2 years and EPS for FY 19 is expected to be Rs. 8.6.
L&T Finance Holdings Ltd: BUY| Target Rs 260| Return 35%
Arihant Capital Market maintains a buy rating on L&T Finance Holdings with a target price of Rs 260. L&T Finance Holdings Limited is a holding company. The Company offers a range of financial products and services across the corporate, retail and infrastructure finance sectors.
The management focuses on restructuring the business model to downsize the loss-making businesses loan book growth to remain fairly strong and likely to above 15 percent which will push ROE to 20 percent by 2020.
Housing finance loan book of 12,534 crores is growing at 28 percent. We estimate for FY19, total loan book will increase to 88,141cr with an adjusted book value of 58.19. We have valued the stock a multiple of 4.5X & arrived at a fair value of 260.
Adani Transmission: BUY| Target Rs 154| Return 21%
Edelweiss Securities Ltd maintains a buy rating on Adani Transmission with a target price of Rs 154. The brokerage firm initiated coverage on the stock earlier this month.
The conviction of Edelweiss is underpinned by 1) whopping Rs3tn domestic transmission opportunity over FY18-22; 2) aggressively growing ATL capturing 20 percent of TBCB projects; 3) debt restructuring & additional leveraging boosting IRR of existing/M&A projects by 300-400bps, and 4) scale & synergy benefits as O&M costs are spread across projects.
Hence, the brokerage firm estimates the company to clock 19 percent and 36 percent EBITDA and PAT CAGR, respectively, over FY17-19. We expect ATL to generate robust FCF, though we do anticipate high growth and M&A appetite.
VIP Industries: BUY| Target Rs 325| Return 38%
Kotak Securities maintains a buy rating on VIP Industries with a target price of Rs325. VIP Industries (VIP) which is the market leader in the organized luggage industry in India with more than 50% market share, manufacturing and supplying a wide range of hard sided and soft-sided luggage.
The domestic brokerage firm estimate revenue CAGR of 17 percent and earnings CAGR of 28 percent over FY17 to FY20E with improvement in operating margins and return ratios.
Kotak Securities believe VIP would be one of the major beneficiaries of healthy GDP growth, rising income level, changing life style and implementation of GST.
KPR Mill Ltd: BUY| Target Rs 904| Return 20%
Centrum Broking maintains a buy rating on KPR Mill Ltd with a target of Rs 904. Over the last 3 years, KPR has been investing in upgrading its machinery and expanding its capacity (in the better margin processed fabric and garment segments).
KPR enjoys steady EBITDA margins (~18-20%), low debt to equity (~0.5x) and decent return profile -- RoE (~24%). “We believe, KPR’s steady financials and volume ramp up in the garment business would help continue to generate better cash flows,” said the note.
Currently, KPR trades at 14.3x P/E on the FY19E basis, which is justified given the healthy financials. Centrum believes that the stock is a good long-term portfolio stock and we initiate coverage with a target price of Rs904, valuing it at 16x its FY19E EPS.
CDSL: BUY| Target Rs 450| Return 28%
Reliance Securities maintains a buy rating on CDSL with a target price of Rs 450. CDSL’s business is characterised by a high degree of predictability and profitability, with the company earning over 35 percent of revenue from annual issuer charges in FY17, which are likely to remain stable-to-growing.
The company has steadily gained market share in its core business vis-à-vis its lone competitor, NSDL and has enjoyed higher incremental market share 4 successive years on low operating cost, net worth criteria, and technology investment.
CDSL has also invested in new business initiatives to drive growth, including KYC services, National Academic Depository, insurance repository services, e-voting to corporates, online drafting solutions, KYC search assistance for Aadhaar holders and GST Suvidha Provider.
Neuland Laboratories: BUY| Target Rs 1318| Return 32%
AnandRathi maintains a buy rating on Neuland Laboratories with a target price of Rs1318. Neuland’s strategy to gradually replace high-volume, low-margin APIs with high-margin complex APIs would aid in boosting its operating margins and profitability. (Such prime products, niche APIs in therapies such as oncology and respiratory, are difficult to copy and attract limited competition).
Some of its niche APIs expected that would drive revenue growth are salmeterol, entacapone, linezolid. The contribution from its niche API division has increased to 26 percent in FY17, from 18 percent in FY14. The brokerage firm expects revenue from the niche segment to register an 18.5 percent CAGR in revenue over FY17-19.
Godrej Properties: BUY| Target Rs 756| Return 26%
BofAML initiated a coverage on Godrej Properties with a buy rating and a target price of Rs756. Godrej Properties (GPL), is a leading pan-India develop.
It has strong ‘Godrej’ brand and asset-light model which make GPL best placed to benefit from consolidation through its JV model and (2) robust sales from recent/upcoming launches coupled with completion/renegotiation of low margin legacy projects could lead to FY17-20E EPS CAGR of 44 percent and 907bps rise in RoE to 20 percent in FY20E.
Current valuations at 4.7x FY19E PB are misleading as it does not account for 110mn sq. ft. development manager (DM) project in Mumbai. Adjusting for NAV of this project (Rs202/share, 32% of m. cap), GPL would trade at 3.2x FY19E P/B.Disclaimer:
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