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Sharekhan on why these 6 stock can surge up to 44%

According to Sharekhan, Mahindra Lifespace Developers' low gearing can be utilised to raise debt to fund inorganic expansion and land acquisitions. Mahindra Lifespace currently trades at a higher NAV discount than its peers. Read on to find out its other picks.

March 09, 2021 / 12:26 PM IST
Sensex
Indian markets kicked off the week breaking its two-day losing streak on March 8. However, high volatility capped gains and pulled Nifty below the "make or break" level of 15,000. The 50-share index ended with marginal gains underperforming the broader markets. At close, the Nifty50 was up 0.12 percent, while S&P BSE Sensex closed higher with gains of 0.07 percent. In comparison, the S&P BSE Smallcap index rose 0.6 percent and the S&P BSE Mid-cap index ended 0.3 percent higher. Sectorally, the action was seen in PSU bank, energy, media, metal and IT stocks, while some profit-booking was witnessed in realty, FMCG, consumption, and financial services space. Nifty formed a small bearish candle on the daily scale (as opening levels were higher than closing levels) with a long upper shadow that indicates limited upside with the absence of a direction. Foreign institutional investors (FIIs) net sold shares worth Rs 1,494 crore, whereas domestic institutional investors (DIIs) net bought shares worth Rs 484 crore in the Indian equity market on March 8, as per provisional data available on the NSE. Here is a list of 6 buying ideas from broking house Sharekhan which can generate double-digit returns. According to the brokerage, strong fundamentals can drive up the prices of these stocks in the long-term.
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Mahindra Lifespace Developers | Rating: Buy | LTP: Rs 537.10 | Target: Rs 655 | Upside: 22 percent. According to Sharekhan, the company has a strong management team that can help scale up its sales and execution over the next 2-3 years. Moreover, the company is expected to benefit from the government’s relentless focus on affordable housing segments, rising affordability levels, favourable state government policies for real estate, and ample inorganic growth opportunities in the sector. The company’s low gearing (current consolidated net debt to equity at 0.04x with 7.5% cost of debt) can be utilised to raise debt to fund inorganic expansion and land acquisitions. Mahindra Lifespace currently trades at a higher NAV discount than its peers. Also, a weak macroeconomic environment leading to a lull in industry growth trend is a key risk.
Nippon Life India Asset Management | Brokerage: | Rating: Buy | LTP: Rs | Target: Rs 418 | Upside: percent. Company is currently available at reasonable valuations of 33x/28x its FY2022E/FY2023E EPS, which are still at a significant discount to the listed industry leader. Comparing the market cap to AUM basis, the company is available at 7.6% (lower than industry leader, which is at ~17%) and has, therefore, head room available. Going forward, industry tailwinds and upside benefits from offshore money inflow (helped by MNC owner) can be growth drivers for the company. The change in ownership has helped and can potentially result in improved global funds flow for the AMC. We expect earnings recovery to gain strength going into FY2022E and FY2023E. The company remains committed to a strong retail business (strong SIP segment; penetration in B30 cities), which we believe are positives for the long term. We believe factors such as improving cost optimisation and operating leverage benefits (due to AUM growth) can result in improvement in RoE, which will be further triggers for re-rating for the stock. As NAM’s revenue ultimately depends on the value of the assets it manages, changes in market conditions and trend of flows into mutual funds may have an impact on operations and profitability.
Nippon Life India Asset Management | Rating: Buy | LTP: Rs 354.25 | Target: Rs 418 | Upside: 18 percent. The company is currently available at reasonable valuations of 33x/28x its FY2022E/FY2023E EPS, which are still at a significant discount to the listed industry leader. Comparing the market cap to AUM basis, the company is available at 7.6% (lower than the industry leader, which is at 17%) and has, therefore, head room available. Going forward, industry tailwinds and upside benefits from offshore money inflow (helped by MNC owner) can be growth drivers for the company. The change in ownership has helped and can potentially result in improved global funds flow for the AMC. We expect earnings recovery to gain strength going into FY2022E and FY2023E. The company remains committed to a strong retail business (strong SIP segment; penetration in B30 cities), which we believe are positives for the long term. We believe factors such as improving cost optimisation and operating leverage benefits (due to AUM growth) can result in improvement in RoE, which will be further triggers for re-rating for the stock. As NAM’s revenue ultimately depends on the value of the assets it manages, changes in market conditions and the trend of flows into mutual funds may have an impact on operations and profitability.
Wipro | Brokerage: | Rating: Buy | LTP: Rs | Target: Rs 510 | Upside: percent. Wipro has redefined its strategic focus with speedy decisions on large strategic M&A in BFSI space and significant hires in leadership positions. This acquisition would the company’s drive growth going ahead given cross-sell/up sell opportunities, enhancement of capabilities, addition of large global financial clients and winning large transformational deals. Though the deal would impact margin during the first year, we believe Capco’s margins would improve in coming years with change in onsite mix and cost efficiency measures. According to broking house the key risks are rupee appreciation and/or adverse cross-currency movements, longer duration of pandemic, constraint in local talent supply in the US and a stringent visa regime to adversely impact earnings.
Wipro | Rating: Buy | LTP: Rs 416.85 | Target: Rs 510 | Upside: 22 percent. Wipro has redefined its strategic focus with speedy decisions on large strategic M&A in the BFSI space and significant hires in leadership positions. This acquisition would drive the company’s growth going ahead given cross-sell/up-sell opportunities, enhancement of capabilities, addition of large global financial clients and winning large transformational deals. Though the deal would impact margin during the first year, we believe Capco’s margins would improve in coming years with a change in onsite mix and cost-efficiency measures. According to the broking house, the key risks are rupee appreciation and/or adverse cross-currency movements, longer duration of the pandemic, constraint in local talent supply in the US and a stringent visa regime to adversely impact earnings.
Dr Reddy’s Laboratories | Brokerage: | Rating: Buy | LTP: Rs | Target: Rs 6,500 | Upside: percent. Sturdy new product pipeline, growth in base business would drive the growth in the US business. Backed by a likely improvement in acquired portfolio, expected pick up in acute therapies and sustained traction in chronics could drive the India sales. Further, initial observations of the recent study by Russia depicts that Sputnik V vaccine is effective against new mutations of the virus. The DCGI, pursuant to DRL’s application seeking emergency authorization for Sputnik V has asked for immunogenicity data which could be expected post the completion of the Phase III studies, that are currently underway. With Europe commencing a rolling review of the Sputnik V vaccine and few member countries in the EU approving the vaccine, it could also have a positive rub off effect on the approval process in India. Over the past 3 months the stock has underperformed the healthcare index & Sensex by ~9% and 19% respectively, with the stock price declining by ~7-8% providing a good entry point for investors. The key risks are adverse development on the regulatory front can impact earnings prospects and currency risks.
Dr Reddy’s Laboratories | Rating: Buy | LTP: Rs 4,490.20 | Target: Rs 6,500 | Upside: 44 percent. Sturdy new product pipeline, growth in base business would drive the growth in the US business. Backed by a likely improvement in the acquired portfolio, expected pick up in acute therapies and sustained traction in chronics could drive the India sales. Further, initial observations of the recent study by Russia depicts that Sputnik V vaccine is effective against new mutations of the virus. The DCGI, pursuant to DRL’s application seeking emergency authorization for Sputnik V has asked for immunogenicity data which could be expected post the completion of the Phase III studies, that are currently underway. With Europe commencing a rolling review of the Sputnik V vaccine and few member countries in the EU approving the vaccine, it could also have a positive rub-off effect on the approval process in India. Over the past 3 months, the stock has underperformed the healthcare index & Sensex by ~9% and 19% respectively, with the stock price declining by ~7-8% providing a good entry point for investors. The key risks are adverse development on the regulatory front can impact earnings prospects and currency risks.
Greaves Cotton | Brokerage: | Rating: Buy | LTP: Rs | Target: Rs 170 | Upside: percent. The performance of Greaves in Q3FY2021 has improved substantially on a sequential basis with PAT improving by 149.5% q-o-q, aided by 51.5% revenue growth and 626 bps expansion in EBITDA margin. The company’s thrust on the e-mobility business provides immense growth potential, as the EV industry remains the key priority of the Indian Government. Moreover, we expect the 3W industry to gain demand, as the COVID-19 situation gets normalised and vaccines are rolled out throughout the country. The opening of schools, educational institutions, corporates, and local/metro trains will be the key catalysts for demand. The company’s focus on new businesses provides further room for strong growth. Success in the e-mobility business and expansion of new portfolio of business provide a fair chance for further re-rating of valuation multiples in the medium term. According to Sharekhan company’s performance can be impacted adversely if commodity prices continue to rise at the current pace. Moreover, prolonged delay in the 3W industry’s recovery can materially impact our revenue projections
Greaves Cotton | Rating: Buy | LTP: Rs 150.50 | Target: Rs 170 | Upside: 13 percent. The performance of Greaves in Q3FY2021 has improved substantially on a sequential basis with PAT improving by 149.5% QoQ, aided by 51.5% revenue growth and 626 bps expansion in EBITDA margin. The company’s thrust on the e-mobility business provides immense growth potential, as the EV industry remains the key priority of the Indian Government. Moreover, we expect the 3W industry to gain demand, as the COVID-19 situation gets normalised and vaccines are rolled out throughout the country. The opening of schools, educational institutions, corporates, and local/metro trains will be the key catalysts for demand. The company’s focus on new businesses provides further room for strong growth. Success in the e-mobility business and expansion of new portfolio of business provide a fair chance for further re-rating of valuation multiples in the medium term. According to Sharekhan company’s performance can be impacted adversely if commodity prices continue to rise at the current pace. Moreover, prolonged delay in the 3W industry’s recovery can materially impact our revenue projections.
JK Lakshmi Cement | Rating: Buy | LTP: Rs | Target: Rs 525 | Upside: percent. JK Lakshmi Cement is expected to benefit from a strong non-trade demand in North and West along with high trade demand in East. Prices stay firm in its key regions apart from the Eastern region which is witnessing a sharp improvement. The company’s announcement of a much-awaited brownfield capacity expansion would ease clinker and capacity constraints and also provide further head room for growth. The company has also been generating strong operating cash flows and lowering leverage which would reduce incremental debt requirement for planned capex. Company is currently trading at an EV/EBITDA of 5.6x its FY2023E earnings, which is lower than its historical average considering healthy net earnings CAGR over FY2021E-FY2023E. The key risks are weak demand in North and East India and subdued pricing would negatively affect profitability
JK Lakshmi Cement | Rating: Buy | LTP: Rs 432.40| Target: Rs 525 | Upside: 21 percent. JK Lakshmi Cement is expected to benefit from strong non-trade demand in North and West along with high trade demand in the East. Prices stay firm in its key regions apart from the Eastern region which is witnessing a sharp improvement. The company’s announcement of a much-awaited brownfield capacity expansion would ease clinker and capacity constraints and also provide further headroom for growth. The company has also been generating strong operating cash flows and lowering leverage which would reduce incremental debt requirement for planned capex. The company is currently trading at an EV/EBITDA of 5.6x its FY2023E earnings, which is lower than its historical average considering healthy net earnings CAGR over FY2021E-FY2023E. The key risks are weak demand in North and East India and subdued pricing would negatively affect profitability
Rakesh Patil
first published: Mar 9, 2021 11:20 am

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