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Sharekhan's top 10 long-term picks for double-digit returns after Q3 results

Gujarat Gas, HPCL, Cadila Healthcare and Hero MotoCorp are among the top 10 picks by the broking house Sharekhan for double-digit returns.

February 06, 2021 / 11:28 AM IST
On February 5, the market extended the Budget driven rally on the fifth consecutive session with Nifty and Sensex crossing the respective milestone of 15,000 and 51,000. We have collated a list of long term buying ideas from the broking house Sharekhan with an upside of 15-32 percent calculated from the closing of February 5, 2021.
On February 5, the market extended the Budget driven rally to the fifth consecutive session, with the Nifty and the Sensex crossing the milestones of 15,000 and 51,000, respectively. We have collated a list of long-term buying ideas from the broking house Sharekhan, with an upside of 15-32 percent calculated from the closing of February 5, 2021.
Mahindra and Mahindra | Rating: Buy | LTP: Rs 865.60 | Target: Rs 1,000 | Upside: 15 percent. We expect M&M to benefit from its leadership status in the tractor segment, strengthening position in the LCV segment and defending its market share in the highly competitive UV segment. Going ahead, M&M’s strategy revolves around tighter capital allocation, exit from loss-making subsidiaries and focusing on core UV business and emerging EV businesses. The company has taken some concrete steps to achieve an 18% RoE from all its businesses makes a strong case for re-rating of the stock.
Mahindra and Mahindra | Rating: Buy | LTP: Rs 865.60 | Target: Rs 1,000 | Upside: 15 percent. We expect M&M to benefit from its leadership status in the tractor segment, strengthening position in the LCV segment and defending its market share in the highly competitive UV segment. Going ahead, M&M’s strategy revolves around tighter capital allocation, exit from loss-making subsidiaries and focusing on core UV business and emerging EV businesses. The company has taken some concrete steps to achieve an 18% RoE from all its businesses makes a strong case for re-rating of the stock.
Hero MotoCorp | Rating: Buy | LTP: Rs 3,428.30 | Target: Rs 4,030 | Upside: 17 percent. Positive outlook conferred by HERO’s management underpins our positive outlook for the 2W industry. Structural demand for 2W remains strong and will drive growth post normalisation of economic activities, owing to improving personal income, increasing penetration in the rural economy, and 2W being the most preferred mode of personal transportation. Incremental growth is likely to come from economy and executive motorcycle segments, which are slated to grow by 11% y-o-y and 10.4% y-o-y in FY2022E, respectively, driven largely by rural and tier 2 and 3 cities. We expect HERO to be the greatest beneficiary in the sector given its leadership and largest distribution network. We have increased our earnings estimates to reflect the impact of improved EBITDA margins.
Hero MotoCorp | Rating: Buy | LTP: Rs 3,428.30 | Target: Rs 4,030 | Upside: 17 percent. A positive outlook conferred by Hero's management underpins our positive outlook for the 2W industry. Structural demand for 2W remains strong and will drive growth after normalisation of economic activities, owing to improving personal income, increasing penetration in the rural economy, and 2W being the most preferred mode of personal transportation. Incremental growth is likely to come from economy and executive motorcycle segments, which are slated to grow by 11% y-o-y and 10.4% y-o-y in FY2022E, respectively, driven largely by rural and tier 2 and 3 cities. We expect HERO to be the greatest beneficiary in the sector given its leadership and largest distribution network. We have increased our earnings estimates to reflect the impact of improved EBITDA margins.
Cadila Healthcare | Rating: Buy | LTP: Rs 475.40 | Target: Rs 560 | Upside: 18 percent. Cadila reported a healthy performance for Q3FY2021. The company’s key segments, the US and India, are expected to witness improved growth traction. In US markets, a sturdy product pipeline with a focus on specialty and complex generics products would be key growth drivers. Over the long term, products such as Saroglitzar Mg and Desidustat as when launched provide sizeable growth opportunities. While in India, new launches, and revival in IPM would fuel growth.
Cadila Healthcare | Rating: Buy | LTP: Rs 475.40 | Target: Rs 560 | Upside: 18 percent. Cadila reported a healthy performance for Q3FY2021. The company’s key segments, the US and India, are expected to witness improved growth traction. In US markets, a sturdy product pipeline with a focus on specialty and complex generics products would be key growth drivers. Over the long term, products such as Saroglitzar Mg and Desidustat as when launched provide sizeable growth opportunities. While in India, new launches, and revival in IPM would fuel growth.
Honeywell Automation India | Rating: Buy | LTP: Rs 41,948.80 | Target: Rs 48,200 | Upside: 15 percent. The company has multiple domestic growth levers such as government’s infrastructure investments including smart cities, upcoming airports over the next five years, RERA, industrial internet of things (IIOT), AatmaNirbhar Bharat initiatives, which we believe would help the company in maintain a healthy growth trend going ahead.
Honeywell Automation India | Rating: Buy | LTP: Rs 41,948.80 | Target: Rs 48,200 | Upside: 15 percent. The company has multiple domestic growth levers such as the government’s infrastructure investments including smart cities, upcoming airports over the next five years, RERA, industrial internet of things (IIOT), Aatmanirbhar Bharat initiatives, which we believe would help the company in maintaining a healthy growth trend going ahead.
HPCL | Rating: Buy | LTP: Rs 225.30 | Target: Rs 275 | Upside: 22 percent. We have increased our FY2021 earnings estimates to factor in higher volumes (given auto fuel market share gains), inventory gain and lower interest cost partially offset by lower marketing margin assumption while increase in FY2022-FY2023 earnings estimate reflects higher volume assumptions. We see risk reward favourable, given earnings visibility, attractive valuation and healthy dividend yield.
HPCL | Rating: Buy | LTP: Rs 225.30 | Target: Rs 275 | Upside: 22 percent. We have raised our FY2021 earnings estimates to factor in higher volumes (given auto fuel market share gains), inventory gain and lower interest cost partially offset by lower marketing margin assumption, while an increase in FY2022-23 earnings estimate reflects higher volume assumptions. We see risk-reward as favourable, given earnings visibility, attractive valuation and healthy dividend yield.
Gujarat Gas
Gujarat Gas | Rating: Buy | LTP: Rs 379.75 | Target: Rs 500 | Upside: 31 percent. We have increased our FY2021-FY2023 earnings estimate to factor in a higher volume assumption and expect a strong 23% PAT CAGR over FY2020-FY2023E. Given high exposure to industrial PNG (80% of overall gas sales volume), we believe GGAS is best placed in the oil and gas space to benefit from India’s robust gas demand outlook supported by the regulatory push to curb pollution.
Ipca Laboratories | Rating: Buy | LTP: Rs 1,936.10 | Target: Rs 2,560 | Upside: 32 percent. Ipca’s API business is witnessing a strong demand traction, which is expected to sustain going ahead. Pricing pressures for Sartans have stabilisedand would, therefore, support growth of the APIs. Ipcais facing certain capacity constraints in the API segment and is implementing a de-bottlenecking exercise, which would ease capacity constraints in the near term. Moreover,Ipcais in the process of setting up a new plant at Ratlam facility with a 50MT capacity, likely to commence operations by 2HFY2022. Over the long term, the Dewas expansion is expected to go on stream in FY2023 and would support growth.
Ipca Laboratories | Rating: Buy | LTP: Rs 1,936.10 | Target: Rs 2,560 | Upside: 32 percent. Ipca’s API business is witnessing strong demand traction, which is expected to sustain going ahead. Pricing pressures for Sartans have stabilisedand would, therefore, support the growth of APIs. Ipcais facing certain capacity constraints in the API segment and is implementing a de-bottlenecking exercise, which would ease capacity constraints in the near term. Moreover, Ipcais in the process of setting up a new plant at Ratlam facility with a 50MT capacity, likely to commence operations by 2HFY2022. Dewas expansion is expected to go on stream in FY2023 and would support growth.
Trent | Rating: Buy | LTP: Rs 686.70 | Target: Rs 825 | Upside: 20 percent. We have increased our earnings estimates for FY2022/FY2023 by 10%-12% because of faster-than-earlier recovery in performance and higher-than-earlier expected OPM. Innovation in product portfolio, scaling up supply chain, 100% own-brand contribution, aggressive store expansions, and leveraging of digital presence will be near-term growth drivers for the company. Trent is among India’s strong branded retail plays with a robust balance sheet, stable cash flows, and one of the highest utilisation rates per store.
Trent | Rating: Buy | LTP: Rs 686.70 | Target: Rs 825 | Upside: 20 percent. We have increased our earnings estimates for FY2022/FY2023 by 10%-12% because of faster-than-earlier recovery in performance and higher-than-earlier expected OPM. Innovation in the product portfolio, scaling up of supply chain, 100% own-brand contribution, aggressive store expansions, and leveraging of digital presence will be near-term growth drivers for the company. Trent is among India’s strong branded retail plays with a robust balance sheet, stable cash flows, and one of the highest utilisation rates per store.
KPR Mill | Rating: Buy | LTP: Rs 921.95 | Target: Rs 1,100 | Upside: 19 percent. We have raised our earnings estimates for FY2022 and FY2023 by 9.4% and 6% respectively to factor in higher sales from the garmenting division and better-than-expected OPM. An increase in garmenting capacity, improving sales of high-value products in yarn/fabrics division and improving growth prospects in exports markets backed by strong government reform would help the textile business achieve strong double digit growth in the next 2-3 years.
KPR Mill | Rating: Buy | LTP: Rs 921.95 | Target: Rs 1,100 | Upside: 19 percent. We have raised our earnings estimates for FY2022 and FY2023 by 9.4% and 6%, respectively, to factor in higher sales from the garment division and better-than-expected OPM. An increase in garment capacity, improving sales of high-value products in yarn/fabrics division and improving growth prospects in the export markets backed by strong government reform would help the textile business achieve strong double digit growth in the next 2-3 years.
PNC Infratech | Rating: Buy | LTP: Rs 244.75 | Target: Rs 300 | Upside: 22 percent. We believe PNC is one of the best picks in the road development sector on account of its strong execution capabilities, healthy balance sheet, robust order book and prudent capital management. The company is one of the key beneficiaries from government’s continuous thrust on road sector. The recent budget highlights strong investments being planned for the road sector for FY2022 and beyond. The company has been strengthening its balance sheet with rising cash balance and improving working capital.
PNC Infratech | Rating: Buy | LTP: Rs 244.75 | Target: Rs 300 | Upside: 22 percent. We believe PNC is one of the best picks in the road development sector on account of its strong execution capabilities, healthy balance sheet, robust order book and prudent capital management. The company is one of the key beneficiaries from the government’s continuous thrust on the road sector. The recent budget highlights strong investments being planned for the road sector for FY2022 and beyond. The company has been strengthening its balance sheet with a rising cash balance and improving working capital.
Rakesh Patil
first published: Feb 6, 2021 11:26 am

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