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Slideshow | Six stocks on brokerages' radar for up to 44% upside

Here are six stocks that brokerages expect to rise upto 44 percent.

September 08, 2020 / 11:11 AM IST
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After a flat closing in the previous session, benchmark indices opened on a subdued note on September 8 amid escalated border tensions between Indian and China. Here are six stocks that brokerages expect to rise upto 44 percent (LTP is the closing price of September 7).
BPCL | Brokerage: Emkay | Rating: Buy | LTP: Rs 400 | Target: Rs 480 | Upside: 20 percent. Operational autonomy of a PSU asset will give significant scope to drive productivity improvements. We expect revenue enhancement tools, outlet rationalization strategies and opex optimization - all put together could add over Rs10bn in EBIDTA. Likewise, capex can be more targeted and rationalized, thereby realizing 10% savings. Private ownership with these levers could generate Rs 240 bn in mid-cycle EBIDTA through FY25. This implies a 30% earnings CAGR versus FY20 and puts BPCL's FV at Rs 900/sh in FY24 or Rs 640 discounted back. This is Rs 160/sh higher than existing target and reflects the strategic premium or management alpha.
BPCL | Brokerage: Emkay | Rating: Buy | LTP: Rs 400 | Target: Rs 480 | Upside: 20 percent. Operational autonomy of a PSU asset will give significant scope to drive productivity improvements. We expect revenue enhancement tools, outlet rationalisation strategies and opex optimisation - all put together could add over Rs10 billion in EBIDTA. Likewise, capex can be more targeted and rationalised, thereby realizing 10 percent savings. Private ownership with these levers could generate Rs 240 billion in mid-cycle EBIDTA through FY25. This implies a 30 percent earnings CAGR versus FY20 and puts BPCL's FV at Rs 900/sh in FY24 or Rs 640 discounted back. This is Rs 160/sh higher than the existing target and reflects the strategic premium or management alpha.
Jubilant Life Sciences | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs 778 | Target: Rs 975 | Upside: 25 percent. We expect a 4% earnings CAGR over FY20–22, led by a 2.5%/3.5% sales CAGR in Specialty Pharma / Specialty Intermediates-Nutritional Products as well as a steady EBITDA margin. The earnings CAGR is partially impacted due to COVID-19-led temporary slowdown in the Radiopharma, CDMO, and Life Sciences Chemicals segments. While the uptick in earnings growth is gradual (partly dented by COVID-19 in FY21), we remain positive on stck on an attractive valuation of 7x FY22 EV/EBITDA.
Jubilant Life Sciences | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs 778 | Target: Rs 975 | Upside: 25 percent. We expect a 4 percent earnings CAGR over FY20–22, led by a 2.5%/3.5% sales CAGR in Specialty Pharma/Specialty Intermediates-Nutritional Products as well as a steady EBITDA margin. The earnings CAGR is partially impacted due to COVID-19-led temporary slowdown in the Radiopharma, CDMO, and Life Sciences Chemicals segments. While the uptick in earnings growth is gradual (partly dented by COVID-19 in FY21), we remain positive on stock on an attractive valuation of 7x FY22 EV/EBITDA.
Coal India | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs 132 | Target: Rs 190 | Upside: 44 percent. Volumes and e-auction realizations have been under pressure on decline in power demand and significant stocks at both mines and power plants. However, power demand is showing signs of improvement and we expect volumes to recover in 2HFY21. Furthermore, we expect Coal India to tide over the current situation given its large cash position. The stock trades attractively at ~1.6x FY22E EV/adj. EBITDA (v/s historical average of 7x), P/E of 5x (v/s average of ~13x) and offers a dividend yield of ~10%.
Coal India | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs 132 | Target: Rs 190 | Upside: 44 percent. Volumes and e-auction realisations have been under pressure on decline in power demand and significant stocks at both mines and power plants. However, power demand is showing signs of improvement and we expect volumes to recover in 2HFY21. Furthermore, we expect Coal India to tide over the current situation given its large cash position. The stock trades attractively at 1.6x FY22E EV/adj. EBITDA (v/s historical average of 7x), P/E of 5x (v/s average of ~13x) and offers a dividend yield of 10 percent.
Asian Paints | Brokerage: Sharekhan | Rating: Buy | LTP: Rs 1,982 | Target: Rs 2,275 | Upside: 14 percent. A shorter re-painting cycle of 3-5 years, shift to trusted brands, rapid urbanisation and resurgence in the industrial/construction activities remain key long-term growth drivers for the paint companies. Strong product portfolio (straddling the pyramid), agile supply chain and strong distribution reach (over 65,000 dealers) would help Asian Paints stand tall among peers and help it achieve double-digit earnings growth in the near to medium term. Stable working capital management and strong cash flows will continue to support its growth prospects. Thus, stable earnings visibility in the medium term and consistent dividend payout of 50%+ will keep valuation at premium.
Asian Paints | Brokerage: Sharekhan | Rating: Buy | LTP: Rs 1,982 | Target: Rs 2,275 | Upside: 14 percent. A shorter re-painting cycle of 3-5 years, shift to trusted brands, rapid urbanisation and resurgence in the industrial/construction activities remain key long-term growth drivers for the paint companies. Strong product portfolio (straddling the pyramid), agile supply chain and strong distribution reach (over 65,000 dealers) would help Asian Paints stand tall among peers and help it achieve double-digit earnings growth in the near to medium term. Stable working capital management and strong cash flows will continue to support its growth prospects. Thus, stable earnings visibility in the medium term and consistent dividend payout of over 50 percent will keep valuation at a premium.
Zydus Wellness | Brokerage: ICICIdirect | Rating: Buy | LTP: Rs 1,641 | Target: Rs 2,300 | Upside: 40 percent. With the reduction of debt, the company would see strong earnings growth in FY20-22E. We expect 51.7% CAGR adjusted earnings growth in FY20-22E. Though return ratios would remain in single digits for the next three to four years, we see potential growth opportunities in its brand through increasing penetration & new launches (smaller SKUs & variants). The stock is available at 24.5x FY22E earnings.
Zydus Wellness | Brokerage: ICICIdirect | Rating: Buy | LTP: Rs 1,641 | Target: Rs 2,300 | Upside: 40 percent. With the reduction of debt, the company would see strong earnings growth in FY20-22E. We expect 51.7 percent CAGR adjusted earnings growth in FY20-22E. Though return ratios would remain in single digits for the next three to four years, we see potential growth opportunities in its brand through increasing penetration and new launches (smaller SKUs & variants). The stock is available at 24.5x FY22E earnings.
SRF | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs 4,199 | Target: Rs 5,170 | Upside: 23 percent. Performance of SRF in the near term should be impacted due to COVID-19 and the auto slowdown. While sluggishness in autos would dent performance of the Technical Textiles business, the slowdown in white goods/autos should impact the Refrigerants business. Increase in replacement demand (when normalcy is achieved) from the auto/white goods sector (for refrigerants) should boost performance of Technical Textiles/Refrigerants. Company has received approval from its Board to raise Rs 10 bn and we believe this is likely to be deployed toward the Chemicals segment. SRF has recently completed capacity expansion in the Packaging films segment.
SRF | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs 4,199 | Target: Rs 5,170 | Upside: 23 percent. Performance of SRF in the near term should be impacted due to COVID-19 and the auto slowdown. While sluggishness in autos would dent the performance of the technical textiles business, the slowdown in white goods/autos should impact the refrigerants business. Increase in replacement demand (when normalcy is achieved) from the auto/white goods sector (for refrigerants) should boost the performance of technical textiles/refrigerants. The company has received approval from its board to raise Rs 10 billion and we believe this is likely to be deployed toward the chemicals segment. SRF has also recently completed capacity expansion in the packaging films segment.
Rakesh Patil
first published: Sep 8, 2020 11:11 am

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