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Last Updated : Aug 12, 2020 10:54 AM IST | Source: Moneycontrol.com

Slideshow | Top 10 brokerage picks for up to 51% upside

Here are the top 10 buying ideas from the brokerages with an upside upto 51 percent. (LTP is closing of August 11, 2020).

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Nifty50 ended higher for the sixth consecutive day on August 11 on the back of buying seen in banking and metal stocks. The Sensex ended 224.93 points higher at 38,407.01, while Nifty rose 52.30 points to close at 11,322.50.

Amara Raja Batteries | Brokerage: Emkay | Rating: Buy | LTP: Rs | Target: Rs 803 | Upside: percent. Amid weakness in the auto sector in FY21E, a swift recovery is expected in the battery segment, led by a pickup in replacement demand. Volumes should improve gradually in Industrial/OEM segments ahead. Also, Emkay expect market share gains to continue for the company and expect a 10%/15% CAGR in revenue/earnings over FY20-23E, with average ROCE of 24% and FCF of Rs5bn/year.

Amara Raja Batteries | Brokerage: Emkay | Rating: Buy | LTP: Rs 742.50 | Target: Rs 803 | Upside: 8 percent | Amid weakness in the auto sector in FY21E, a swift recovery is expected in the battery segment, led by a pickup in replacement demand. Volumes should improve gradually in Industrial/OEM segments ahead. Also, Emkay expects market share gains to continue for the company and expect a 10%/15% CAGR in revenue/earnings over FY20-23E, with average ROCE of 24% and FCF of Rs5bn/year.

Rallis India | Brokerage: Emkay | Rating: Buy | LTP: Rs | Target: Rs 335 | Upside: percent. The company plans backward integration for two of its key molecules and would manufacture the intermediate itself over the next two years. Management also guided that demand for pendimethalin remains robust in volume terms despite lower realization. Broking house remain positive on stock as management's focus on CRAMS opportunity, filling portfolio gaps in the crop care and seeds business should augur well over the medium term.

Rallis India | Brokerage: Emkay | Rating: Buy | LTP: Rs 305.55 | Target: Rs 335 | Upside: 9 percent. The company plans backward integration for two of its key molecules and would manufacture the intermediate itself over the next two years. Management also guided that demand for pendimethalin remains robust in volume terms despite lower realisation. Broking house remains positive on stock as management's focus on CRAMS opportunity, filling portfolio gaps in the crop care and seeds business should augur well over the medium-term.

JK Lakshmi Cement | Brokerage: ICICIdirect | Rating: Buy | LTP: Rs | Target: Rs 330 | Upside: percent. JK Lakshmi’s Q1FY21 performance remained above estimates mainly on account of better-than-expected sales volume for the quarter. Plant utilisation was at 65% for the quarter led by improved sales volumes during May-June. The balacesheet continues to remain healthy with D/E of 0.6 and RoIC expected to reach 20% by FY22E. Furthermore, current levels imply that JK Lakshmi Cement is trading at an EV/t of 43 and 5.2x FY22E EV/EBITDA, thus providing valuation comfort.

JK Lakshmi Cement | Brokerage: ICICIdirect | Rating: Buy | LTP: Rs 283.45 | Target: Rs 330 | Upside: 16 percent. JK Lakshmi’s Q1 FY21 performance remained above estimates mainly on account of better-than-expected sales volume for the quarter. Plant utilisation was at 65 percent for the quarter led by improved sales volumes during May-June. The balance sheet continues to remain healthy with D/E of 0.6 and RoIC expected to reach 20% by FY22E. Furthermore, current levels imply that JK Lakshmi Cement is trading at an EV/t of 43 and 5.2x FY22E EV/EBITDA, thus providing valuation comfort.

Divis Laboratories | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs | Target: Rs 350 | Upside: percent. Broking hosue raise its EPS estimate by 16%/13% for FY21/FY22E to factor favorable demand for company's APIs, margin enhancement owing to an increase in the in-house manufacturing of intermediates, and additional revenue from new capex. It expect a 33% earnings CAGR over FY20–22E, led by increased business prospects from Custom Synthesis and Generics as well as 600 bp margin expansion on better operating leverage.

Divis Laboratories | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs 3,135.75 | Target: Rs 3,350 | Upside: 6 percent. Broking house raised its EPS estimate by 16%/13% for FY21/FY22E to factor favorable demand for the company's APIs, margin enhancement owing to an increase in the in-house manufacturing of intermediates, and additional revenue from new capex. It expects a 33 percent earnings CAGR over FY20–22E, led by increased business prospects from Custom Synthesis and Generics as well as 600 bp margin expansion on better operating leverage.

Birla Corporation | Brokerage: AnandRathi | Rating: Buy | LTP: Rs | Target: Rs 830 | Upside: percent. Company's cement and jute divisions hit by the lockdown and cyclone Amphan, Birla Corp’s revenue/EBITDA/PAT fell 35%/39%/53% y/y. Frequent local lockdowns and floods in Bihar are hurting demand. While the Kundanganj expansion continues to be postponed, the board of directors approved to expand Durgapur GU capacity by 0.24m ton by Q3FY23 whereas Yavatmal expansion to commence by Q2 FY22. This will keep leverage high, however, AnandRathi expect, net D/E of 0.79x in FY22 (vs 0.77x a year ago) on improved profitability.

Birla Corporation | Brokerage: AnandRathi | Rating: Buy | LTP: Rs 592.05 | Target: Rs 830 | Upside: 40 percent. The company's cement and jute divisions hit by the lockdown and cyclone Amphan, Birla Corp’s revenue/EBITDA/PAT fell 35%/39%/53% y/y. Frequent local lockdowns and floods in Bihar are hurting demand. While the Kundanganj expansion continues to be postponed, the board of directors approved to expand Durgapur GU capacity by 0.24m ton by Q3 FY23 whereas Yavatmal expansion to commence by Q2 FY22. This will keep leverage high, however, AnandRathi expects, net D/E of 0.79x in FY22 (vs 0.77x a year ago) on improved profitability.

HPCL | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs | Target: Rs 304 | Upside: percent. The company has reiterated that overall business is a function of both refining and marketing margins, which tends to normalize in the longer term. The company has made strong dividend payout of 80% in FY20, with dividend yield at 4.6%. However, owing to higher capex, FCF generation for the company is forecasted to remain negative.

HPCL | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs 215.10 | Target: Rs 304 | Upside: 41 percent. The company has reiterated that overall business is a function of both refining and marketing margins, which tends to normalise in the longer term. The company has made a strong dividend payout of 80 percent in FY20, with a dividend yield at 4.6 percent. However, owing to higher capex, FCF generation for the company is forecasted to remain negative.

Source: Reuters

M&M | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs 629.25 | Target: Rs 720 | Upside: 14 percent. Mahindra & Mahindra’s (MM) Q1 FY21 earnings were driven by strong performance in the tractor business. Demand recovery was most prominent in tractors, which has led to supply constraints. While the company's core business would recover faster, the focus on tightening capital allocation could act as a re-rating catalyst. Hence, broking house sees twin levers of EPS growth and re-rating. Despite its recent outperformance, valuations are still at a substantial discount to its 5-year average.

Titan Company | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs 1,066.50 | Target: Rs 1,300 | Upside: 22 percent. Impact of higher-than-expected depreciation and interest costs along with impact of ineffective hedges has led to 6% decline in EPS forecasts for FY21. However, the gradual improvement in outlook for the jewelry business (over 80% of sales) has led us to increase in FY22E EPS by 6%. Likelihood of recovery in 3QFY21 versus management guidance of 4QFY21 seems likely, particularly due to the bunching up of postponed wedding demand, in addition to traditionally strong demand for wedding jewelry, in 3QFY21, and festive demand.

Titan Company | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs 1,066.50 | Target: Rs 1,300 | Upside: 22 percent. Impact of higher-than-expected depreciation and interest costs along with the impact of ineffective hedges has led to a 6 percent decline in EPS forecasts for FY21. However, the gradual improvement in the outlook for the jewellery business (over 80 percent of sales) has led us to increase in FY22E EPS by 6 percent. Likelihood of recovery in Q3 FY21 versus management guidance of Q4 FY21 seems likely, particularly due to the bunching up of postponed wedding demand, in addition to traditionally strong demand for wedding jewellery, in Q3 FY21, and festive demand.

Mahanagar Gas | Brokerage: Sharekhan | Rating: Buy | LTP: Rs 971.10 | Target: Rs 1,380 | Upside: 42 percent. Earnings to recover sharply over FY22E-FY23E as gas sales volumes likely to normalise and margins rise. It is a cheapest CGD stock with attractive valuation of 11.3x FY22E EPS. The valuation gap with peers to narrow on expected revival in volumes, superior margin and FCF yield of 7%.

Mahanagar Gas | Brokerage: Sharekhan | Rating: Buy | LTP: Rs 971.10 | Target: Rs 1,380 | Upside: 42 percent. Earnings to recover sharply over FY22E-FY23E as gas sales volumes likely to normalise and margins rise. It is the cheapest CGD stock with attractive valuation of 11.3x FY22E EPS. The valuation gap with peers to narrow on expected revival in volumes, superior margin and FCF yield of 7 percent.

Ramco System | Brokerage: Dolat Capital | Rating: Buy | LTP: Rs 165.35 | Target: Rs 250 | Upside: 51 percent. Result commentary and performance both has been a positive surprise and has led to restoration of our growth/estimates largely back to pre-pandemic levels. Also, positive newsflow on execution in terms of faster deployment would help it pace up the revenue recognition. We expect flattish revenue performance in Q2 as surprise growth in Aviation would normalize while the traction in Logistic-ERP improves. The profitability is also likely to normalize to a large degree as some office return to operations, travel begins and marketing spends are increased to chase growth.

Ramco System | Brokerage: Dolat Capital | Rating: Buy | LTP: Rs 165.35 | Target: Rs 250 | Upside: 51 percent. Result commentary and performance both has been a positive surprise and has led to the restoration of our growth/estimates largely back to pre-pandemic levels. Also, positive newsflow on execution in terms of faster deployment would help it pace up the revenue recognition. We expect flattish revenue performance in Q2 as surprise growth in Aviation would normalise while the traction in Logistic-ERP improves. The profitability is also likely to normalize to a large degree as some office return to operations, travel begins and marketing spends are increased to chase growth.

First Published on Aug 12, 2020 10:54 am
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