Sharekhan bets on these 10 stocks for double-digit returns in the long term

Tata Consumer Products, Gland Pharma, Nestle India and Sanofi India among the top picks

March 03, 2021 / 12:37 PM IST
Sensex
The market extended its winning streak for the second day on March 2 with Nifty reclaiming 14,900 supported by IT and auto stocks. The Sensex rose 447.05 points, or 0.90 percent, to close at 50,296.89, while Nifty added 157.60 points, or 1.07 percent, to end at 14,919.10. We have collated ten long-term buying ideas by Sharekhan with an upside of up to 29 percent, as calculated from the closing of March 02, 2021.
Ramco Cements | Brokerage: | Rating: Buy | LTP: Rs | Target: Rs 1,150 | Upside: percent. We expect Ramco to benefit from a strong pricing discipline in South India, while demand sees sharp pick up in FY2022 led by rising state government spending on infrastructure and housing sectors in Tamil Nadu and Kerala. Its ongoing expansion plans provide ample room to capture future growth potential. The company’s balance sheet is expected to remain strong despite its aggressive expansion plans.
Ramco Cements | Rating: Buy | LTP: Rs 993.75 | Target: Rs 1,150 | Upside: 15 percent. We expect Ramco to benefit from a strong pricing discipline in South India, while demand sees sharp pick up in FY2022 led by rising state government spending on infrastructure and housing sectors in Tamil Nadu and Kerala. Its ongoing expansion plans provide ample room to capture future growth potential. The company’s balance sheet is expected to remain strong despite its aggressive expansion plans.
Britannia Industries | Rating: Buy | LTP: Rs 3,413.35 | Target: Rs 4,200 | Upside: 23 percent. With long-term growth strategies in place, we expect growth in Britannia’s biscuit volumes to beat the category’s growth in the coming years. This along with scale-up in revenues of adjacent categories and efficiencies would help Britannia to achieve revenue and earning CAGR growth of 12.5% and 18.4% over FY2020-23E. The stock is currently trading at 35x its FY2023E EPS, significant discount to its large five years average multiple of 45x.
Britannia Industries | Rating: Buy | LTP: Rs 3,447.10 | Target: Rs 4,200 | Upside: 22 percent. With long-term growth strategies in place, we expect growth in Britannia’s biscuit volumes to beat the category’s growth in the coming years. This along with scale-up in revenues of adjacent categories and efficiencies would help Britannia to achieve revenue and earning CAGR growth of 12.5% and 18.4% over FY2020-23E. The stock is currently trading at 35x its FY2023E EPS, significant discount to its large five years average multiple of 45x.
Tata Consumer Products | Rating: Buy | LTP: Rs 623.35 | Target: Rs 740 | Upside: 18 percent. The management’s near-term focus is on smooth integration of Tata Chemicals’ consumer business and expanding its domestic operations. Gaining market share in the branded tea and staples space, scaling up the new ventures such as retail coffee and water beverages business and a foray into new categories through relevant new launches remain key catalyst for growth in the near term along with relevant inorganic initiatives. With consistent double-digit growth in revenue, steady margin improvement and stable working capital management, TCPL expects return ratios to improve to double digits in the medium term.
Tata Consumer Products | Rating: Buy | LTP: Rs 631.40 | Target: Rs 740 | Upside: 17 percent. The management’s near-term focus is on smooth integration of Tata Chemicals’ consumer business and expanding its domestic operations. Gaining market share in the branded tea and staples space, scaling up the new ventures such as retail coffee and water beverages business and a foray into new categories through relevant new launches remain key catalyst for growth in the near term along with relevant inorganic initiatives. With consistent double-digit growth in revenue, steady margin improvement and stable working capital management, TCPL expects return ratios to improve to double digits in the medium term.
Max Financial Services | Rating: Buy | LTP: Rs 861.40 | Target: Rs 1,100 | Upside: 27 percent. The regulatory approvals put the overhang for the deal behind us, and focus will now shift to business performance and the possible synergy benefits for the entities. Axis Bank has been the MLI’s strongest distribution partner, with ~ 60% contribution to APE and, hence, was a crucial partner for it. Moreover, MLI has been on-boarding newer bancassurance partners with banks and new-age digital players, which would not only help diversify the mix but also provide higher sales capacity for it. Hence, we believe business tailwinds may result in providing a positive trigger for improving metrics going forward.
Max Financial Services | Rating: Buy | LTP: Rs 895.85 | Target: Rs 1,100 | Upside: 22 percent. The regulatory approvals put the overhang for the deal behind us, and focus will now shift to business performance and the possible synergy benefits for the entities. Axis Bank has been the MLI’s strongest distribution partner, with ~ 60% contribution to APE and, hence, was a crucial partner for it. Moreover, MLI has been on-boarding newer bancassurance partners with banks and new-age digital players, which would not only help diversify the mix but also provide higher sales capacity for it. Hence, we believe business tailwinds may result in providing a positive trigger for improving metrics going forward.
Gland Pharma | Rating: Buy | LTP: Rs 2,359.20 | Target: Rs 3,040 | Upside: 29 percent. Being an established player in the space globally, it is slated to benefit from increasing preference for Injectables, while a high entry barrier would ensure lower competitive pressures and sustained growth momentum. Gland has a unique B2B business model, which enables it to gain market share while maintaining its cost leadership. The fact that the company has nil observations from USFDA for its plants is testimony to the stringent compliance standards followed. The US market accounts for 67% of the revenue and a clean compliance track record is a key strength. Potential opportunities in the vaccine space, if accrued could complement growth.
Gland Pharma | Rating: Buy | LTP: Rs 2,349.95 | Target: Rs 3,040 | Upside: 29 percent. Being an established player in the space globally, it is slated to benefit from increasing preference for Injectables, while a high entry barrier would ensure lower competitive pressures and sustained growth momentum. Gland has a unique B2B business model, which enables it to gain market share while maintaining its cost leadership. The fact that the company has nil observations from USFDA for its plants is testimony to the stringent compliance standards followed. The US market accounts for 67% of the revenue and a clean compliance track record is a key strength. Potential opportunities in the vaccine space, if accrued could complement growth.
Inox Leisure | Rating: Buy | LTP: Rs 308.40 | Target: Rs 400 | Upside: percent. Though near-term challenges are likely to persist amid COVID-19, we do not see any material structural impact, including change in consumer behaviour from COVID-19. We expect gradual recovery over the next 1-2 quarters as COVID vaccination is catching pace, anticipated faster-than-expected increase in occupancy rate owing to closure of single screens, and release of fresh content. Management expects occupancy rate to revert to normal levels Q4FY2022. We believe the multiplex business is going to be a sustainable model in the long term given Indian movie-goers’ strong appetite for the silver screen.
Inox Leisure | Rating: Buy | LTP: Rs 316.40 | Target: Rs 400 | Upside: 26 percent. Though near-term challenges are likely to persist amid COVID-19, we do not see any material structural impact, including change in consumer behaviour from COVID-19. We expect gradual recovery over the next 1-2 quarters as COVID vaccination is catching pace, anticipated faster-than-expected increase in occupancy rate owing to closure of single screens, and release of fresh content. Management expects occupancy rate to revert to normal levels Q4FY2022. We believe the multiplex business is going to be a sustainable model in the long term given Indian movie-goers’ strong appetite for the silver screen.
Nestle India | Rating: Buy | LTP: Rs 16,288.20 | Target: Rs 19,055 | Upside: 17 percent. Nestle is the largest food company with a strong portfolio of brands in the packaged food & beverages space, which will help it achieve good growth at a time when consumers are shifting to trusted brands, rural aspirations are improving, thereby boosting overall penetration. A gradual recovery in out-of-home consumption is also a positive. Also, improving demographics with more population expected to come into middle income group and a rise in young population augurs well for Nestle’s products. We expect revenues and PAT to clock a CAGR of 12.4% and 18.4% over CY2020-22E.
Nestle India | Rating: Buy | LTP: Rs 16,571.95 | Target: Rs 19,055 | Upside: 15 percent. Nestle is the largest food company with a strong portfolio of brands in the packaged food & beverages space, which will help it achieve good growth at a time when consumers are shifting to trusted brands, rural aspirations are improving, thereby boosting overall penetration. A gradual recovery in out-of-home consumption is also a positive. Also, improving demographics with more population expected to come into middle income group and a rise in young population augurs well for Nestle’s products. We expect revenues and PAT to clock a CAGR of 12.4% and 18.4% over CY2020-22E.
Amber Enterprises India | Rating: Buy | LTP: Rs 3,200.10 | Target: Rs 3,716 | Upside: 16 percent. Amber is well-placed to capture the incremental demand accruing from the indigenisation of both fully built-up units and components ecosystem development through reduced imports and likely expansion of PLI schemes for AC and components. Further, capacity expansion through a greenfield project at Supa (Pune) with projected capacity of 1 million units (operational by Q4FY22) should improve business. On the export front, management remains optimistic for both fully built-up units and components that can potentially emerge over the next 3-4 years.
Amber Enterprises India | Rating: Buy | LTP: Rs 3,203.65 | Target: Rs 3,716 | Upside: 16 percent. Amber is well-placed to capture the incremental demand accruing from the indigenisation of both fully built-up units and components ecosystem development through reduced imports and likely expansion of PLI schemes for AC and components. Further, capacity expansion through a greenfield project at Supa (Pune) with projected capacity of 1 million units (operational by Q4FY22) should improve business. On the export front, management remains optimistic for both fully built-up units and components that can potentially emerge over the next 3-4 years.
Sanofi India | Rating: Buy | LTP: Rs 8,264.10 | Target: Rs 9,249 | Upside: 12 percent.
Sanofi India | Rating: Buy | LTP: Rs 8,326.55 | Target: Rs 9,249 | Upside: 11 percent. Sanofi reported a weak performance for the quarter, though numbers are not comparable due to the completion of the slump sale transaction of the Ankleshwar plant. Moreover, a chronic-heavy portfolio and strong performance of the top brands coupled with a dominant share in their respective categories (due to strong brand positioning) provides comfort on growth ahead. Given the divesture of Ankleshwar plant and increasing focus on the high-growth branded formulations segment, OPM is expected to expand. Therefore, healthy topline growth coupled with margin expansion would result in a double-digit earnings CAGR for CY2020-CY2022.
 Dalmia Bharat | Brokerage: | Rating: Buy | LTP: Rs 1,496.05 | Target: Rs 1,900 | Upside: 27 percent. Dalmia Bharat is expected to grow its net earnings by 22% CAGR over FY2021E-FY2023E driven by healthy volume growth in core eastern regions. Further, its medium and long term expansion plans would provide long-term sustainable growth post FY2023E. Despite expansion, the balance sheet is expected to further strengthen and return ratios to improve. We have built in higher-than-consensus net earnings for FY2021-FY2023 factoring better margins led by operating leverage.
Dalmia Bharat | Brokerage: | Rating: Buy | LTP: Rs 1,496.05 | Target: Rs 1,900 | Upside: 27 percent. Dalmia Bharat is expected to grow its net earnings by 22% CAGR over FY2021E-FY2023E driven by healthy volume growth in core eastern regions. Further, its medium and long term expansion plans would provide long-term sustainable growth post FY2023E. Despite expansion, the balance sheet is expected to further strengthen and return ratios to improve. We have built in higher-than-consensus net earnings for FY2021-FY2023 factoring better margins led by operating leverage.
Rakesh Patil
first published: Mar 3, 2021 12:24 pm

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