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Slideshow | ONGC, Coal India, Zensar Tech, NHPC among 10 picks for up to 60% return

Here are the 10 stocks in which brokerages having buy rating and expecting 13-66 percent upside.

September 04, 2020 / 12:06 PM IST
Sensex
Benchmark indices ended a volatile day on a flat note amid positive trend seen in the global markets. Buying witnessed in the IT, pharma, auto and FMCG pack, while bank and metal remained under pressure.
JK Cement | Brokerage: ICICIdirect | Rating: Buy | Target: Rs 1,800 | LTP: Rs 1,485 | Upside: 21 percent. The management’s efforts to improve cost efficiencies through newly added capacities (4.2 MT) are expected to improve profitability, going ahead. Thus, we remain positive on the company considering its margin profile and healthy balance sheet. The full benefit of expansion would be visible in FY22E.
JK Cement | Brokerage: ICICIdirect | Rating: Buy | Target: Rs 1,800 | LTP: Rs 1,485 | Upside: 21 percent. The management’s efforts to improve cost efficiencies through newly added capacities (4.2 MT) are expected to improve profitability, going ahead. Thus, we remain positive on the stock considering its margin profile and healthy balance sheet. The full benefit of expansion would be visible in FY22E.
ONGC | Brokerage: Motilal Oswal | Rating: Buy | Target: Rs 105 | LTP: Rs 79 | Upside: 33 percent. Although gas production has been delayed, we expect a significant jump over the next 3-4 years, led by the various projects that ONGC has been working on. Oil production is expected to remain flat. Factoring in the delay, we have revised down our gas production estimates for FY21/FY22E to 24.7bcm/30.2bcm and estimates for oil at 23.6mmt/24mmt remain unchanged.
ONGC | Brokerage: Motilal Oswal | Rating: Buy | Target: Rs 105 | LTP: Rs 79 | Upside: 33 percent. Although gas production has been delayed, we expect a significant jump over the next 3-4 years, led by various projects that ONGC has been working on. Oil production is expected to remain flat. Factoring in the delay, we have revised down our gas production estimates for FY21/FY22E to 24.7bcm/30.2bcm and estimates for oil at 23.6mmt/24mmt remain unchanged.
Coal India | Brokerage: Emkay | Rating: Buy | Target: Rs 208 | LTP: Rs 135 | Upside: 54 percent. Dispatches have increased for the fourth consecutive month in Aug'20 to 44mt. We expect production and dispatch to pick up after the monsoon. The stock is currently trading at 3x FY22E EBITDA. We expect restoration of a 20% mark-up on e-auction prices from Oct'20 dispatches (provided demand recovers), which should trigger the next round of uptick in the stock.
Coal India | Brokerage: Emkay | Rating: Buy | Target: Rs 208 | LTP: Rs 135 | Upside: 54 percent. Dispatches have increased for the fourth consecutive month in August 2020 to 44mt. We expect production and dispatch to pick up after the monsoon. The stock is currently trading at 3x FY22E EBITDA. We expect restoration of a 20% mark-up on e-auction prices from October dispatches (provided demand recovers), which should trigger the next round of uptick in the stock.
RIL | Brokerage: KRChoksey | Rating: Buy | Target: Rs 2394 | LTP: Rs 2,112 | Upside: 13 percent. The acquisition of Future Group by Reliance Industries will benefit the company through vast economies of scale and robust back end infrastructure. It will help manage the competition and prevent challenges from local retailers like Dmart, which is at a distinct second position. On a proforma basis, the acquired Future Group entities would have boosted Reliance Retail’s FY2020 revenues by 17%. We continue to maintain our positive view on the long-term performance of RIL and we like the business re-organization initiatives at RIL (HoldCo – OpCo structure) and its ability to attract long term investors. Petrochem & Refinery is likely to recover from H2FY21 as global economy recovers. (Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.)
RIL | Brokerage: KRChoksey | Rating: Buy | Target: Rs 2394 | LTP: Rs 2,112 | Upside: 13 percent. The acquisition of Future Group by Reliance Industries will benefit the company through vast economies of scale and robust back end infrastructure. It will help manage the competition and prevent challenges from local retailers like Dmart. On a proforma basis, the acquired Future Group entities would have boosted Reliance Retail’s FY2020 revenues by 17%. We continue to maintain our positive view on the long-term performance of RIL and we like the business re-organization initiatives at RIL (HoldCo – OpCo structure) and its ability to attract long term investors. Petrochem & Refinery is likely to recover from H2FY21 as the global economy recovers. (Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.)
Zensar Technologies | Brokerage: Angel Broking | Rating: Buy | Target: Rs 105 | LTP: Rs 175 | Upside: 66 percent. Company was adversely impacted in FY2020 due to ramp down in the retail and consumer group segment. However, company has won deals worth USD 150mn during the quarter and management has said that the deal pipeline is very strong at USD 1.5bn as compared to USD 1.0bn a quarter ago. We expect the company to post revenue/EBITDA/PAT growth of 4.5%/17.8%/19.7% between FY20-FY22 given that the worst is over for the company in terms of client ramp downs.
Zensar Technologies | Brokerage: Angel Broking | Rating: Buy | Target: Rs 105 | LTP: Rs 175 | Upside: 66 percent. The company was adversely impacted in FY2020 due to ramp down in the retail and consumer group segment. However, company has won deals worth USD 150mn during the quarter and management has said that the deal pipeline is very strong at USD 1.5bn as compared to USD 1.0bn a quarter ago. We expect the company to post revenue/EBITDA/PAT growth of 4.5%/17.8%/19.7% between FY20-FY22 given that the worst is over for the company in terms of client ramp downs.
Swaraj Engines | Brokerage: Angel Broking | Rating: Buy | Target: Rs 1,891 | LTP: Rs 1,625 | Upside: 16 percent. Swaraj Engines is engaged in the business of manufacturing diesel engines and hi-tech engine components. Diesel Engines are specifically designed for tractor application. Going forward, we expect recovery in the tractor industry (due to robust Rabi crop production, hike in MSP & the forecast of a normal monsoon) will benefit players like Swaraj Engines.
Swaraj Engines | Brokerage: Angel Broking | Rating: Buy | Target: Rs 1,891 | LTP: Rs 1,625 | Upside: 16 percent. Swaraj Engines is engaged in the business of manufacturing diesel engines and hi-tech engine components. Diesel Engines are specifically designed for tractor application. Going forward, we expect recovery in the tractor industry (due to robust Rabi crop production, hike in MSP & the forecast of a normal monsoon) will benefit players like Swaraj Engines.
SBI Life Insurance | Brokerage: Motilal Oswal | Rating: Buy | Target: Rs 1000 | LTP: Rs 852 | Upside: 17 percent. Company is in a sweet spot given its strong distribution network, cost leadership and access to its parent SBI’s large customer base. Overall, we expect operating ROEV to normalize toward 18% levels with Embedded Value (EV) reflecting 16% CAGR over FY20-23E.
SBI Life Insurance | Brokerage: Motilal Oswal | Rating: Buy | Target: Rs 1000 | LTP: Rs 852 | Upside: 17 percent. The company is in a sweet spot given its strong distribution network, cost leadership and access to its parent SBI’s large customer base. Overall, we expect operating ROEV to normalize toward 18% levels with Embedded Value (EV) reflecting 16% CAGR over FY20-23E.
Apex Frozen Foods | Brokerage: Geojit | Rating: Buy | Target: Rs 340 | LTP: Rs 277 | Upside: 22 percent. Q1FY21 revenue de-grew by 1.6% YoY. Better realization and rupee depreciation offset the impact of 11.4% YoY decline in volumes. EBITDA grew by 51.6% YoY mainly aided by 620bps increase in gross margin due to better realisation and reduction in raw material cost. Apex has recently got all the required approvals for its newly added capacity of 20,000MT and ramp up in utilization will aid future growth. We increase our volume assumptions to factor gradual improvement in industry supply-chain while appreciation in INR will impact realisation. Expect revenue/PAT to grow at 15%/28% CAGR over FY20E-FY22E.
Apex Frozen Foods | Brokerage: Geojit | Rating: Buy | Target: Rs 340 | LTP: Rs 277 | Upside: 22 percent. Q1FY21 revenue de-grew by 1.6% YoY. Better realization and rupee depreciation offset the impact of 11.4% YoY decline in volumes. EBITDA grew by 51.6% YoY mainly aided by 620bps increase in gross margin due to better realisation and reduction in raw material cost. Apex has recently got all the required approvals for its newly added capacity of 20,000MT and ramp-up in utilization will aid future growth. We increase our volume assumptions to factor gradual improvement in industry supply-chain while appreciation in INR will impact realisation. Expect revenue/PAT to grow at 15%/28% CAGR over FY20E-FY22E.
NHPC | Brokerage: Emkay | Rating: Buy | Target: Rs 27 | LTP: Rs 21.55 | Upside: 25 percent. Generation fell 5.5% yoy to 8.1 billion units as two units of Chamera II power station were shut. Blended realization rose 0.8% yoy to Rs 3.23/unit. However, revenue increased 4.0% yoy to Rs 25.2 billion, driven by incremental revenue from the power trading business. The company has guided for the full commissioning of Parbati II project by Q4FY22, which will enhance regulated equity to Rs 158.9 billion in Q1FY23. We expect Subansiri project to achieve CoD in FY25, which would scale regulated equity to Rs 220 billion.
NHPC | Brokerage: Emkay | Rating: Buy | Target: Rs 27 | LTP: Rs 21.55 | Upside: 25 percent. Generation fell 5.5% YoY to 8.1 billion units as two units of Chamera II power station were shut. Blended realization rose 0.8% YoY to Rs 3.23/unit. However, revenue increased 4.0% yoy to Rs 25.2 billion, driven by incremental revenue from the power trading business. The company has guided for the full commissioning of Parbati II project by Q4FY22, which will enhance regulated equity to Rs 158.9 billion in Q1FY23. We expect Subansiri project to achieve CoD in FY25, which would scale regulated equity to Rs 220 billion.
Bharti Airtel | Brokerage: Sharekhan | Rating: Buy | Target: Rs 710 | LTP: Rs 538 | Upside: 32 percent. Supreme Court directed telcos to pay 10% of AGR dues upfront by March 2021 and the balance over 10 years starting FY2022. Bharti Airtel will have to pay Rs 2,600 crore upfront in FY2021 and Rs 3,500 crore annually from FY2022; we believe a price hike is inevitable to offset the impact of AGR dues. We also believe that Bharti Airtel would gain as the market structure moves towards a duopoly. Further, we believe that the valuation gap with Reliance Jio would narrow further.
Bharti Airtel | Brokerage: Sharekhan | Rating: Buy | Target: Rs 710 | LTP: Rs 538 | Upside: 32 percent. Supreme Court directed telcos to pay 10% of AGR dues upfront by March 2021 and the balance over 10 years starting FY2022. Bharti Airtel will have to pay Rs 2,600 crore upfront in FY2021 and Rs 3,500 crore annually from FY2022; we believe a price hike is inevitable to offset the impact of AGR dues. We also believe that Bharti Airtel would gain as the market structure moves towards a duopoly. Further, we believe that the valuation gap with Reliance Jio would narrow further.
Rakesh Patil
first published: Sep 4, 2020 08:55 am

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