Sharekhan picks these 12 stocks for double-digit returns in the long term

Mahanagar Gas, Ultratech Cement, Cholamandalam Investment and Bharat Electronics are among 12 buying ideas from Sharekhan

January 16, 2021 / 12:56 PM IST
SENSEX
On January 15, profit booking on the Dalal Street pulled Nifty below 14,450 level and Sensex fell 549 points on the back of weak global cues. All the sectoral indices ended in the green. Here are the 12 buying ideas from Sharekhan which could give double-digit return.
KEC International | Brokerage: Sharekhan | Rating: Buy | LTP: Rs | Target: Rs 435 | Upside: percent. The management remains confident of delivering a good performance in FY2021 despite challenges as most projects are operational now. Order inflow visibility remains healthy in railways, international T&D, and civil businesses. The stock of KEC has doubled since April, with good performance in the first half of FY21 and has since been showing improving trajectory in execution and order inflows. Additionally, its liquidity profile is improving with rising cash flows, better working capital management, and lowering of interest outgo.
KEC International | Rating: Buy | LTP: Rs 353.30 | Target: Rs 435 | Upside: 23 percent. The management remains confident of delivering a good performance in FY2021 despite challenges as most projects are operational now. Order inflow visibility remains healthy in railways, international T&D, and civil businesses. The stock of KEC has doubled since April, with good performance in the first half of FY21 and has since been showing improving trajectory in execution and order inflows. Additionally, its liquidity profile is improving with rising cash flows, better working capital management, and lowering of interest outgo.
Bharat Electronics | Brokerage: Sharekhan | Rating: Buy | LTP: Rs | Target: Rs 152 | Upside: percent. The company is well-positioned to deliver strong performance in the coming years given its robust order book, major beneficiary from increasing emphasis on indigenisation. Company remains preferred pick in the defence sector on account of its strong manufacturing and R&D base, good cost control, growing indigenisation, and strong balance sheet with improving return ratios.
Bharat Electronics | Rating: Buy | LTP: Rs 133.45 | Target: Rs 152 | Upside: 14 percent. The company is well-positioned to deliver strong performance in the coming years given its robust order book, major beneficiary from increasing emphasis on indigenisation. Company remains preferred pick in the defence sector on account of its strong manufacturing and R&D base, good cost control, growing indigenisation, and strong balance sheet with improving return ratios.
Cholamandalam Investment | Rating: Buy | LTP: Rs | Target: Rs 520 | Upside: percent. Company's valuations are supported by its superior performance throughout cycles, high medium-term RoEs and a strong management at the helm of the group, which add to investor comfort. Sharekhan expect disbursements to grow on a y-o-y basis in H2FY2021 and expect AUM growth of ~ 25% for FY2022E and FY2023E and expecting operating expenses to AUM ratio to be at 2.1%-2.4% and ROE to improve to 19% and 20%, respectively, for FY2022E and FY2023E.
Cholamandalam Investment | Rating: Buy | LTP: Rs 424.10 | Target: Rs 520 | Upside: 22 percent. Company's valuations are supported by its superior performance throughout cycles, high medium-term RoEs and a strong management at the helm of the group, which add to investor comfort. Sharekhan expect disbursements to grow on a y-o-y basis in H2FY2021 and expect AUM growth of ~ 25% for FY2022E and FY2023E and expecting operating expenses to AUM ratio to be at 2.1%-2.4% and ROE to improve to 19% and 20%, respectively, for FY2022E and FY2023E.
Lumax Auto Technologies | Rating: Buy | LTP: Rs | Target: Rs 148 | Upside: percent. Lumax Auto is witnessing strong growth traction from clients, driven by a recovery in automotive and expansion of product portfolio. The outlook remains positive with strong recovery expected from FY2022, driven by normalisation of economic activities. Operating profit margins would expand led by operating leverage and cost-control measures. The key risks are a second wave of COVID-19 can hamper economic activities and affect revenue growth. Also, pricing pressures from OEMs may hit profitability.
Lumax Auto Technologies | Rating: Buy | LTP: Rs 124.45 | Target: Rs 148 | Upside: 19 percent. Lumax Auto is witnessing strong growth traction from clients, driven by a recovery in automotive and expansion of product portfolio. The outlook remains positive with strong recovery expected from FY2022, driven by normalisation of economic activities. Operating profit margins would expand led by operating leverage and cost-control measures. The key risks are a second wave of COVID-19 can hamper economic activities and affect revenue growth. Also, pricing pressures from OEMs may hit profitability.
UltraTech Cement | Rating: Buy | LTP: Rs | Target: Rs 6,000 | Upside: percent. UltraTech has risen over 30% over trailing three months on the back of strong Q2FY2021 performance and a sharp pick up in domestic economy during the unlock period. Sharekhan expect company to continue to benefit from sustained rural demand, along with a kick start of government infrastructure execution during H2FY2021. Further, its ongoing capex plan is expected to provide next leg of growth with government’s focus continuing to remain on infrastructure investments and housing sector. The improving demand and limited capacity additions is also expected to maintain healthy pricing discipline in the sector going ahead.
UltraTech Cement | Rating: Buy | LTP: Rs 5,452.25 | Target: Rs 6,000 | Upside: 10 percent. UltraTech has risen over 30% over trailing three months on the back of strong Q2FY2021 performance and a sharp pick up in domestic economy during the unlock period. Sharekhan expect company to continue to benefit from sustained rural demand, along with a kick start of government infrastructure execution during H2FY2021. Further, its ongoing capex plan is expected to provide next leg of growth with government’s focus continuing to remain on infrastructure investments and housing sector. The improving demand and limited capacity additions is also expected to maintain healthy pricing discipline in the sector going ahead.
HCL Technologies Ltd.
HCL Technologies | Rating: Buy | LTP: Rs 989.80 | Target: Rs 1,200 | Upside: 21 percent. Broking firm believe HCL Tech’s infrastructure and application capabilities are expected to drive its overall growth in this cloud adoption environment. Further, strong order bookings, a healthy deal pipeline, and higher spends on digital transformation are expected to support company’s growth going forward. With improving free cash flow (FCF) generation, it expect management would increase its payout ratio in coming years.
Carborundum Universal | Brokerage: Sharekhan | Rating: Buy | LTP: Rs 416.65 | Target: Rs 500 | Upside: 20 percent. The business is looking up with better than anticipated pickup in economic recovery and manufacturing activity along with encouraging auto numbers. CUMI is on the cusp of growth revival with expected improvement in domestic economic activity and a strong product line-up for overseas operations. The company’s capacity expansion, new product introduction, end-user demand, and geographic diversification are expected to revive its earnings growth trajectory from FY2022.
Carborundum Universal | Rating: Buy | LTP: Rs 416.65 | Target: Rs 500 | Upside: 20 percent. The business is looking up with better than anticipated pickup in economic recovery and manufacturing activity along with encouraging auto numbers. CUMI is on the cusp of growth revival with expected improvement in domestic economic activity and a strong product line-up for overseas operations. The company’s capacity expansion, new product introduction, end-user demand, and geographic diversification are expected to revive its earnings growth trajectory from FY2022.
HDFC Life Insurance | Brokerage: Sharekhan | Rating: Buy | LTP: Rs 704.85 | Target: Rs 850 | Upside: 20 percent. The stock trades at 5.0x/4.2x its FY2022E/FY2023E EVPS. Premium valuation to sustain as HDFC Life has a better diversified product bouquet (no segment contributing to more than 30% of the APE), best-in-class branding, strong metrics. We believe that the company is wellplaced to deliver strong and sustainable long-term APE growth. Aided by strong fundamentals (robust balance sheet and consistent profitability) and high long-term growth potential for the Indian insurance industry in general and HDFC Life, in particular, we find HDFC Life an attractive long-term bet.
HDFC Life Insurance | Rating: Buy | LTP: Rs 704.85 | Target: Rs 850 | Upside: 20 percent. The stock trades at 5.0x/4.2x its FY2022E/FY2023E EVPS. Premium valuation to sustain as HDFC Life has a better diversified product bouquet (no segment contributing to more than 30% of the APE), best-in-class branding, strong metrics. We believe that the company is wellplaced to deliver strong and sustainable long-term APE growth. Aided by strong fundamentals (robust balance sheet and consistent profitability) and high long-term growth potential for the Indian insurance industry in general and HDFC Life, in particular, we find HDFC Life an attractive long-term bet.
Mahanagar Gas | Brokerage: Sharekhan | Rating: Buy | LTP: Rs 1,090.80 | Target: Rs 1,380 | Upside: 26 percent. We have increased our FY2021-FY2023 earnings estimates to factor in higher margin assumption, while we have largely maintained our volume growth assumption. We believe MGL’s underperformance versus the broader index (MGL stock price up by 5% versus 19% rise in Sensex in the past one year) should reverse as overhang of open access is over and focus is expected to shift back to earnings recovery over FY2022E-FY2023E.
Mahanagar Gas | Rating: Buy | LTP: Rs 1,090.80 | Target: Rs 1,380 | Upside: 26 percent. We have increased our FY2021-FY2023 earnings estimates to factor in higher margin assumption, while we have largely maintained our volume growth assumption. We believe MGL’s underperformance versus the broader index (MGL stock price up by 5% versus 19% rise in Sensex in the past one year) should reverse as overhang of open access is over and focus is expected to shift back to earnings recovery over FY2022E-FY2023E.
Granules India | Rating: Buy | LTP: Rs 356.05 | Target: Rs 475 | Upside: 33 percent. Granules is witnessing strong traction across segments, which is expected to sustain going ahead as well. Granules is looking to expand its reach and tap new geographies for growth. Moreover, to meet demand, Granules is undertaking a capacity expansion plan, where in it is debottlenecking existing capacities and is also setting a new block at an existing facility. Further, a favourable mix, operational efficiencies accruing would drive the margin expansion, which in turn would result in a sturdy 32% earnings CAGR over FY2020 to FY2023. However, of late, Granules is facing logistics issues which has led to delayed shipments, causing raw material shortages. Granules believes that this is a shortlived phenomenon and business is expected to regain normalcy shortly.
Granules India | Rating: Buy | LTP: Rs 356.05 | Target: Rs 475 | Upside: 33 percent. Granules is witnessing strong traction across segments, which is expected to sustain going ahead as well. Granules is looking to expand its reach and tap new geographies for growth. Moreover, to meet demand, Granules is undertaking a capacity expansion plan, where in it is debottlenecking existing capacities and is also setting a new block at an existing facility. Further, a favourable mix, operational efficiencies accruing would drive the margin expansion, which in turn would result in a sturdy 32% earnings CAGR over FY2020 to FY2023. However, of late, Granules is facing logistics issues which has led to delayed shipments, causing raw material shortages. Granules believes that this is a shortlived phenomenon and business is expected to regain normalcy shortly.
CESC | Rating: Buy | LTP: Rs 692 | Target: Rs 825 | Upside: 19 percent. We see a scope for gradual re-rating in CESC, led by a recovery in earnings from the standalone business, sustained profitable operations at Dhariwal Infrastructure and potential turnaround of the Rajasthan distribution franchisee by FY2022. Moreover, decision to consolidate all power distribution business under one subsidiary is a positive step as it would help to tap upcoming opportunities in power distribution (government focus to privatise discoms in union territories). We like the business model of CESC as regulated RoE provides earnings visibility and valuation is also attractive at 0.7x FY2023E P/BV along with a healthy dividend yield of 6-7%.
CESC | Rating: Buy | LTP: Rs 692 | Target: Rs 825 | Upside: 19 percent. We see a scope for gradual re-rating in CESC, led by a recovery in earnings from the standalone business, sustained profitable operations at Dhariwal Infrastructure and potential turnaround of the Rajasthan distribution franchisee by FY2022. Moreover, decision to consolidate all power distribution business under one subsidiary is a positive step as it would help to tap upcoming opportunities in power distribution (government focus to privatise discoms in union territories). We like the business model of CESC as regulated RoE provides earnings visibility and valuation is also attractive at 0.7x FY2023E P/BV along with a healthy dividend yield of 6-7%.
Amber Enterprises | Rating: Buy | LTP: Rs 2,607 | Target: Rs 3,170 | Upside: 21 percent. With its unique scalable and sustainable business model, we expect Amber to clock a 33%/61%/113% CAGR in Revenue/EBITDA/PAT over FY2021E-FY2023E led by enhanced capacity, increased product offerings and customer penetration coupled with healthy demand outlook for the electronic outsourcing industry.
Amber Enterprises | Rating: Buy | LTP: Rs 2,607 | Target: Rs 3,170 | Upside: 21 percent. With its unique scalable and sustainable business model, we expect Amber to clock a 33%/61%/113% CAGR in Revenue/EBITDA/PAT over FY2021E-FY2023E led by enhanced capacity, increased product offerings and customer penetration coupled with healthy demand outlook for the electronic outsourcing industry.
Rakesh Patil
first published: Jan 16, 2021 11:55 am

stay updated

Get Daily News on your Browser
Sections