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Sharekhan bets on these 10 stocks for upto 39% upside

Grasim Industries, Gail India, Asian Paints, Divis Laboratories and Birlasoft are among the 10 stocks Sharekhan is bullish on

December 09, 2020 / 11:28 AM IST
Benchmark indices ended higher on December 8 supported by the PSU banks, while selling was seen in the metal and pharma names. Nifty had a touch and go moment at 13,400 but managed to close at record closing for the sixth straight session. Despite the lofty valuations, Sharekhan has a buy call on these 10 stock with a potential upside of up to 39%
Benchmark indices ended higher on December 8 supported by the PSU banks, while selling was seen in the metal and pharma names. Nifty had a touch and go moment at 13,400 but managed to close at record closing for the sixth straight session. Despite the lofty valuations, Sharekhan has a buy call on these 10 stock with a potential upside of up to 39%
JSW Steel Ltd.
JSW Steel | Rating: Buy | LTP: Rs 362 | Target: Rs 432 | Upside: 19 percent. The broking house increased FY2021-FY2023 earnings estimates to factor in higher EBITDA margin to reflect the recent increase in domestic steel prices. Along with improved earnings outlook, JSW Steel would also benefit from higher volume over FY2022E-FY2023E as it is on track to commission capacity expansion at Dolvi plant (undergoing 5mtpa capacity expansion) by Q4FY2021. Thus, broking house expects JSW Steel’s earnings to register a 29% CAGR over FY2020-FY2023E with improvement in RoE to 16% (versus 10.5% in FY2020).
Ashoka Buildcon | Brokerage: Sharekhan | Rating: Buy | LTP: Rs | Target: Rs 110 | Upside: percent. The EPC business of Ashoka Buildcon at CMP is grossly undervalued at just 2x P/E on FY2022E standalone earnings, post factoring ACL and ABL’s asset portfolio. Broking house expect tolling projects to maintain growth momentum on the back of opening up of the economy after the Covid-led lockdown aiding the monetization of ACL’s assets. Company's order backlog at Rs 9,300 crore (2.5x TTM standalone revenues), provides a healthy revenue visibility while it further bags new projects.
Gail India | Rating: Buy | LTP: Rs 121 | Target: Rs 140 | Upside: 15 percent. Shrekhan increased FY2021-FY2023 earnings estimates to factor improved profitability for the gas trading segment given the sharp rise in spot LNG prices. GAIL’s stock price has runup sharply by 39% in the past one month, led by improving earnings outlook and introduction of unified tariff regulations. Despite the recent run-up, GAIL’s valuation of 5.6x its FY2023E EV/EBITDA is attractive, and it expects the company to be the key beneficiary of the government’s aim to increase the share of gas in India’s energy mix to 15% by 2025 (versus only 6% currently) as the same provides a sustainable volume growth opportunity for its gas pipeline and trading business.
Ashoka Buildcon | Brokerage: Sharekhan | Rating: Buy | LTP: Rs | Target: Rs 110 | Upside: percent. The EPC business of Ashoka Buildcon at CMP is grossly undervalued at just 2x P/E on FY2022E standalone earnings, post factoring ACL and ABL’s asset portfolio. Broking house expect tolling projects to maintain growth momentum on the back of opening up of the economy after the Covid-led lockdown aiding the monetization of ACL’s assets. Company's order backlog at Rs 9,300 crore (2.5x TTM standalone revenues), provides a healthy revenue visibility while it further bags new projects.
Ashoka Buildcon | Rating: Buy | LTP: Rs 100 | Target: Rs 110 | Upside: 10 percent. The EPC business of Ashoka Buildcon at CMP is grossly undervalued at just 2x P/E on FY2022E standalone earnings, post factoring ACL and ABL’s asset portfolio. Broking house expects tolling projects to maintain growth momentum on the back of opening up of the economy after the Covid-led lockdown aiding the monetization of ACL’s assets. Company's order backlog at Rs 9,300 crore (2.5x TTM standalone revenues), provides healthy revenue visibility while it further bags new projects.
Grasim Industries Ltd.
Grasim Industries | Rating: Buy | LTP: Rs 925 | Target: Rs 1,120 | Upside: 21 percent. Grasim is witnessing improving outlook for its standalone business with easing of lockdown restrictions domestically and improving textile demand environment in China. The firming up of VSF prices and bottoming out of caustic soda prices driven by demand from textile and paper industries is expected to benefit Grasim going ahead. Further, the outlook for its key subsidiary, UltraTech, remains healthy with expected demand from government-led infrastructure investments and sustained demand from rural and individual home builders.
Birlasoft | Brokerage: Sharekhan | Rating: Buy | LTP: Rs | Target: Rs 222 | Upside: percent. Research house assume company’s revenue growth would bounce back in Q3FY2021 despite lower working days, while margins would be better than Q2FY2021 led by cost optimisation measures. The management eyes total deal signings of $100-$150 million per quarter in the coming months, which would accelerate growth. Shrekhan estimate revenue to clock a 10% CAGR over FY2021-23E, while earnings would clock a 25% CAGR in the same period led by an improvement in profitability and lower tax provision.
Birlasoft | Rating: Buy | LTP: Rs 201 | Target: Rs 222 | Upside: 10 percent. The research house expects the company’s revenue growth would bounce back in Q3 FY2021 despite lower working days, while margins would be better than Q2 FY2021 led by cost optimisation measures. The management eyes total deal signings of $100-$150 million per quarter in the coming months, which would accelerate growth. Shrekhan estimate revenue to clock a 10% CAGR over FY2021-23E, while earnings would clock a 25% CAGR in the same period led by an improvement in profitability and lower tax provision.
Mastek | Brokerage: Sharekhan | Rating: Buy | LTP: Rs | Target: Rs 1,200 | Upside: percent. The company management remains confident on growth prospects in the near to medium term, led by the expansion of existing logos and addition of new logos in the UK public-sector business, fully operational sales team to drive Oracle commerce business in the US, recovery of the UK private-sector business (in FY2022E) and strong show in the Evosys business. Sharekhan believe that September 2020 quarter margin represents a peak (21.1% EBITDA margin) and it could sustain at a narrow band over the remaining quarters of FY2021 despite wage hikes.
Mastek | Rating: Buy | LTP: Rs 1,017 | Target: Rs 1,200 | Upside: 18 percent. The company's management remains confident on growth prospects in the near to medium term, led by the expansion of existing logos and addition of new logos in the UK public-sector business, fully operational sales team to drive Oracle commerce business in the US, recovery of the UK private-sector business (in FY2022E) and strong show in the Evosys business. Sharekhan believes that September 2020 quarter margin represents a peak (21.1% EBITDA margin) and it could sustain at a narrow band over the remaining quarters of FY2021 despite wage hikes.
TVS Motor Company | Brokerage: Sharekhan | Rating: Buy | LTP: Rs | Target: Rs 570 | Upside: percent. Company is witnessing strong recovery in domestic demand with sales volume in the festive season. Sales enquiry is strong after the festive season, underpinning our view of genuine demand in the 2W segment. Research house expect strong recovery from FY2022, driven by normalisation of economic activity. Margins are expected to improve, driven by operating leverage and cost-control measures.
TVS Motor Company | Rating: Buy | LTP: Rs 507 | Target: Rs 570 | Upside: 12 percent. Company is witnessing strong recovery in domestic demand with sales volume in the festive season. Sales enquiry is strong after the festive season, underpinning our view of genuine demand in the 2W segment. Research house expects strong recovery from FY2022, driven by normalisation of economic activity. Margins are expected to improve, driven by operating leverage and cost-control measures.
Divis Laboratories | Brokerage: Sharekhan | Rating: Buy | LTP: Rs | Target: Rs 4,175 | Upside: percent. Divis is witnessing improved demand traction across its segments of API and custom synthesis business. To capitalise on these opportunities, the company is expanding its capacity across both these segments. Divis is in the midst of a recently announced Rs 400 crore capex plan for the custom synthesis segment, backed by strong orders from its customers, especially in the European region. Furthermore, these projects are high-value projects and, hence, augur well for the company. In addition to this, Divis is also implementing a Rs 1,800 crore capex plan, which involves de-bottlenecking of existing plants as well as setting up of two new units. The expanded capacities are expected to contribute to the topline from FY2022.
Divis Laboratories | Brokerage: Sharekhan | Rating: Buy | LTP: Rs 3688 | Target: Rs 4,175 | Upside: 13 percent. Divis is witnessing improved demand traction across its segments of API and custom synthesis business. To capitalise on these opportunities, the company is expanding its capacity across both these segments. Divis is in the midst of a recently announced Rs 400 crore capex plan for the custom synthesis segment, backed by strong orders from its customers, especially in the European region. Furthermore, these projects are high-value projects and, hence, augur well for the company. In addition to this, Divis is also implementing a Rs 1,800 crore capex plan, which involves de-bottlenecking of existing plants as well as setting up of two new units. The expanded capacities are expected to contribute to the topline from FY2022.
Asian Paints | Brokerage: Sharekhan | Rating: Buy | LTP: Rs | Target: Rs 2,605 | Upside: percent. Market share gains from unorganized players, a gradual recovery in painting activities of metros / tier-1 towns and pick-up in the institutional/industrial business would be key revenue growth drivers along with increasing traction to home decor products in the near term. Company’s leadership position in domestic decorative paints industry, focus on becoming a complete home decor segment and sturdy balance sheet justifies premium valuations of ~56x its FY2023E EPS.
Asian Paints | Brokerage: Sharekhan | Rating: Buy | LTP: Rs 2442 | Target: Rs 2,605 | Upside: 6 percent. Market share gains from unorganized players, a gradual recovery in painting activities of metros / tier-1 towns and pick-up in the institutional/industrial business would be key revenue growth drivers along with increasing traction to home decor products in the near term. Company’s leadership position in domestic decorative paints industry focus on becoming a complete home decor segment and sturdy balance sheet justifies premium valuations of ~56x its FY2023E EPS.
Ashok Leyland | Brokerage: Sharekhan | Rating: Buy | LTP: Rs | Target: Rs 131 | Upside: percent. CV volumes are improving on a sequential basis, with company expected to grow in H2FY21E. FY2022 is likely to witness strong recovery, driven by normalisation of economic activities and pent-up demand, considering FY2020 and FY2021 would be two consecutive years of downcycle. The stock is currently trading at 7.9x its FY2023E EV/EBITDA multiple, almost 48% discount to its long-term average EV/EBITDA multiple of 11.7x.
Ashok Leyland | Brokerage: Sharekhan | Rating: Buy | LTP: Rs 94.30 | Target: Rs 131 | Upside: 39 percent. CV volumes are improving on a sequential basis, with the company expected to grow in H2FY21E. FY2022 is likely to witness strong recovery, driven by normalisation of economic activities and pent-up demand, considering FY2020 and FY2021 would be two consecutive years of downcycling. The stock is currently trading at 7.9x its FY2023E EV/EBITDA multiple, almost 48% discount to its long-term average EV/EBITDA multiple of 11.7x.
Rakesh Patil
first published: Dec 9, 2020 11:28 am

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