These 10 stocks are likely to give 11-47% return in mid-long term

Gujarat State Petronet, Wipro, Indian Energy Exchange, Jamna Auto Industries and CSB Bank are among the stocks that brokerages are bullish on.

March 11, 2021 / 02:25 PM IST
Sensex
The benchmark indices ended in the green for the third straight session on March 10. The Sensex rose 254.03 points, or 0.50 percent, to end at 51,279.51, while the Nifty added 76.40 points, or 0.51 percent, to close at 15,174.80. The Nifty pharma, IT, auto and metal indices rose a percent each, while some selling was seen in the energy names. BSE midcap and smallcap indices ended higher. The Nifty formed a bearish hammer candle on the daily scale, with a long lower shadow, which indicates declines were being bought. Siddhartha Khemka, Head-Retail Research, Motilal Oswal Financial Services, is of the view that while the long term structure of the market continues to be positive, markets may face some hurdles in the near term till the concerns over the rising bond yields, commodity prices and risk of increase in inflation recede. "Investors would look for cues from global markets and Institutional flows which has been patchy for last few days. Investors would also track India’s import/export data along with bank’s loans and deposit growth data for further cues," he added. Here are 10 stocks that brokerages think can give up to 47 return in the mid to long term:
Voltas | Brokerage: Dolat Capital | Rating: Buy | LTP: Rs | Target: Rs 1,260 | Upside: percent. Industry prospects are looking bright with the anticipated severity in the summer. Voltas aims to continue with its market leading share without sacrificing margins and reckons the current 5-6% price increase should cover current commodity costs. It may take a further view on pricing depending on input costs and channel response in the coming weeks. The views on restructuring, engineering business and Beko were largely in line with the narrative of the Q3 conference call. As industry focus shifts to the summer months, Voltas remains the pick for playing the AC penetration theme.
Voltas | Brokerage: Dolat Capital | Rating: Buy | LTP: Rs 1,061.50 | Target: Rs 1,260 | Upside: 18 percent. Industry prospects are looking bright with the anticipated severity in the summer. Voltas aims to continue with its market leading share without sacrificing margins and reckons the current 5-6% price increase should cover current commodity costs. It may take a further view on pricing depending on input costs and channel response in the coming weeks. The views on restructuring, engineering business and Beko were largely in line with the narrative of the Q3 conference call. As industry focus shifts to the summer months, Voltas remains the pick for playing the AC penetration theme.
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CSB Bank | Brokerage: Dolat Capital | Rating: Buy | LTP: Rs 261.10 | Target: Rs 320 | Upside: 22 percent. From strengthening its top management to moving towards product-based lending approach, along with balance sheet clean up and improvement in core operating metrics, the bank is now well placed for growth along with adequate capital backing. Dolat Capital expects RoAs to rise to 1.3/1.4% by FY22E/23E led by improving PPoP profile and decline in credit costs. CSB has a sticky depositor base and among the lowest TD/SA rates in the industry. Despite lowest SA rates at 2.1%, CASA growth was above industry at 24% YoY in 3QFY21. Margins also benefitted from the rise in CD ratio (74% as of 3QFY21) and higher gold lending yields, which increased by ~250 bps since the end of FY19 despite a declining interest rate scenario. Consequently, NIM improved by over 100 bps over the last seven quarters and margins are expected to stabilise at 4.2-4.5%.
Jamna Auto Industries | Brokerage: Dolat Capital | Rating: Buy | LTP: Rs | Target: Rs 99 | Upside: percent. Jamna Auto Industries (JAI) has maintained its dominance with 68% market share in the domestic OEM segment. It has presence amongst most domestic CV players with a relatively high wallet share like Ashok Leyland and Bharat Benz. As company’s facilities are located close to OEM plants, the company benefits from lower logistics costs, which makes it difficult for new entrants to garner market share from OEMs. Company has tremendous potential to gain market share in the aftermarket segment led by launches of various products and expansion in distribution network. Dolat Capital forecast that the Revenue/EBITDA will grow at 48/57% CAGR over FY21-23E, led by revival in high tonnage MHCV segment with uptick in economic activities and margin expansion. The company is an ideal play on the ongoing revival in CV demand given its 68% market share in domestic OEM segment. Broking house expect a sharp revival in higher tonnage CVs and pickups in logistic activities will aid significant revenue growth.
Jamna Auto Industries | Brokerage: Dolat Capital | Rating: Buy | LTP: Rs 70 | Target: Rs 99 | Upside: 41 percent. Jamna Auto Industries (JAI) has maintained its dominance with a 68% market share in the domestic OEM segment. It has presence among most domestic CV players with a relatively high wallet share like Ashok Leyland and Bharat Benz. As the company’s facilities are located close to OEM plants, the company benefits from lower logistics costs, which makes it difficult for new entrants to garner market share from OEMs. The company has tremendous potential to gain market share in the aftermarket segment led by launches of various products and expansion in the distribution network. Dolat Capital forecast that the revenue/EBITDA will grow at 48/57% CAGR over FY21-23E, led by a revival in high tonnage MHCV segment with an uptick in economic activities and margin expansion. The company is an ideal play on the ongoing revival in CV demand given its 68% market share in the domestic OEM segment. The broking house expects a sharp revival in higher tonnage CVs and pickups in logistic activities will aid significant revenue growth.
RITES | Brokerage: HDFC Securities | Rating: Buy | LTP: Rs | Target: Rs 296 | Upside: percent. Rites’ 9MFY21 results were impacted due to the pandemic and consequent disruptions. As the situation normalizes, execution will improve going forward. Rites has robust order book of Rs 6534 crore as of Dec-2020 spread across categories giving immunity from any sort of concentration risk. The order book constitutes 71% of orders from Govt. and PSU and 29% from others. Rites has been debt free company for more than a decade with RoE of over 20% and a healthy dividend yield of ~6%. With planned 34% increase in budgetary capex for rail (lasting upto 2030), Metro and Infra projects the company sees foreseeable double digit growth in FY22 over FY20. We estimate Revenues/EBITDA/PAT to grow at a CAGR of 16/20/21% respectively over FY21E-23E on the back of healthy order book and improvement in execution of orders going forward.
RITES | Brokerage: HDFC Securities | Rating: Buy | LTP: Rs 260.40 | Target: Rs 296 | Upside: 13 percent. Rites’ 9MFY21 results were impacted due to the pandemic and consequent disruptions. As the situation normalises, execution will improve going forward. RITES has a robust order book of Rs 6,534 crore as of December 2020 spread across categories, giving immunity from any sort of concentration risk. The order book constitutes 71% of orders from Govt. and PSU and 29% from others. RITES has been a debt-free company for more than a decade with RoE of over 20% and a healthy dividend yield of ~6%. With a planned 34% increase in budgetary capex for rail (lasting upto 2030), metro and Infra projects, the company sees foreseeable double-digit growth in FY22 over FY20. Revenue/EBITDA/PAT expected to grow at a CAGR of 16/20/21%, respectively, over FY21E-23E on the back of a healthy order book and improvement in the execution of orders.
Radico Khaitan | Promoter entity Sapphire Intrex released 15 lakh pledged shares. (Image: radicokhaitan.com)
Radico Khaitan | Brokerage: HDFC Securities | Rating: Buy | LTP: Rs 567.60 | Target: Rs 668 | Upside: 17 percent. Radico is well placed as an attractive value play in the overall IMFL industry in India with a presence in several popular and semi-premium categories. Favourable demographics for the alcohol industry in the form of the median age of 26.8 years for India and growing social acceptability of alcohol are likely to augur well for the industry. Rapid urbanisation, increased consumerism, and the adoption of trendier lifestyles are driving vodka sales across smaller towns and cities (largely perceived as a cosmopolitan drink). Vodka is finding increasing acceptance among a large and growing number of young population (especially among females) in the Tier II cities and towns. Radico has a 60% share in the vodka market nationally.
Indian Energy Exchange | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs | Target: Rs 355 | Upside: percent. Company launched its RTM product in Jun’20. The same has picked up well, with URS power coming on board on the sell side. RTM now accounts for ~15% of volumes. It expects RTM volumes to increase as demand recovers and more DISCOMs come on board. Currently, the buy side is slightly concentrated with the top five buyers accounting for 58% of RTM volumes. The management expects momentum for new products to continue with the launch of: a) LDCs, b) green DAM, and c) cross-border transactions. The SC hearing in Feb’21 that would have paved the way for the launch of LDCs (and electricity derivatives) has been postponed. Apart from the Electricity segment, the company has diversified into the Gas market with the launch of Indian Gas Exchange (IGX). It is also working on modalities related to the potential formation of a coal exchange.
Indian Energy Exchange | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs 308.50 | Target: Rs 355 | Upside: 15 percent. The company launched its RTM product in Jun’20. It has picked up well, with URS Power coming on board on the sell side. RTM now accounts for ~15% of volumes. It expects RTM volumes to increase as demand recovers and more DISCOMs come on board. The buy side is slightly concentrated with the top five buyers accounting for 58% of RTM volumes. The management expects momentum for new products to continue with the launch of :  a) LDCs, b) green DAM and c) cross-border transactions. The Supreme Court SC hearing in February that would have paved the way for the launch of LDCs (and electricity derivatives) has been put off. Apart from the power segment, the company has diversified into the gas with the launch of the Indian Gas Exchange. It is also working on modalities related to the potential formation of a coal exchange.
Endurance Technologies | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs | Target: Rs 1,750 | Upside: percent. After a slow recovery post lifting of COVID-related restrictions, we believe that the underlying demand drivers for 2Ws are still intact and expect 2W demand to return to 6-8% CAGR over the next five years. Motilal Oswal prefer company over 2W OEMs as the best way to play the 2W industry, given that the company has a strong positioning with all OEMs and is the beneficiary of the underlying trend in premiumization, scooterization, and electrification. The company has seen good traction in its nascent Passenger Vehicle (PV) segment (~5% of standalone sales in FY20) in the Aluminum Die-casting business. It is on the right side of both customers and technology. On the customer side, it is working with the fastest growing OEMs in the Indian PV industry.
Endurance Technologies | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs 1,401| Target: Rs 1,750 | Upside: 25 percent. After a slow recovery post lifting of COVID-related restrictions, we believe that the underlying demand drivers for 2Ws are still intact and expect demand to return to 6-8% CAGR over the next five years. Motilal Oswal prefers the company over 2W OEMs as the best way to play the 2W industry, given that the company has a strong positioning with all OEMs and is the beneficiary of the underlying trend in premiumisation, scooterisation, and electrification. The company has seen good traction in its nascent passenger vehicle (PV) segment (~5% of standalone sales in FY20) in the aluminum die-casting business. It is on the right side of customers as well as technology. On the customer side, it is working with the fastest growing OEMs.
Cummins | Brokerage: Sharekhan | Rating: Buy | LTP: Rs | Target: Rs 1,030 | Upside: percent. Cummins has started to witness the benefits arising from a strong revival in key segments such as power generation, construction, data centres and mining, which are expected to sustain going forward. Further, the industrial segment’s sales will be driven by demand from railways, metro and road (compressors). Improvement in core business and increased outsourcing of maintenance services by clients are expected to boost the distribution business. Further, cost initiatives undertaken by the company have been yielding benefits in terms of improved OPM. Sharekhan remain constructive on Cummins and expect a 15% net earnings CAGR over FY2021E-FY2023E, as it continues to gain from healthy demand led by a domestic economic revival.
Cummins | Brokerage: Sharekhan | Rating: Buy | LTP: Rs 879.15 | Target: Rs 1,030 | Upside: 17 percent. Cummins has started to witness the benefits arising from a strong revival in key segments such as power generation, construction, data centres and mining, which are expected to sustain going forward. Further, the industrial segment’s sales will be driven by demand from the railways, metro and road (compressors). Improvement in core business and increased outsourcing of maintenance services by clients are expected to boost the distribution business. Further, cost initiatives undertaken by the company have been yielding benefits in terms of improved OPM. Sharekhan remains constructive on Cummins and expects a 15% net earnings CAGR over FY2021E-FY2023E, as it continues to gain from healthy demand led by a domestic economic revival.
Gujarat State Petronet | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs | Target: Rs 400 | Upside: percent. Company has a debt of Rs 11.4b at present. The management targets to become debt free in the next 3-4 quarters. It could reward shareholders by increasing its dividend payout from ~ 12-13% at present. Company’s tryst with upstream investments has not been successful, resulting in its standalone/consolidated net debt rising to a peak of Rs 234b/Rs 277b in FY17. It sold off its stake in the KG basin in FY17 to ONGC and wrote off Rs 149b. It also consolidated its stake in GUJGA with GUJS in FY18. As a result of better profitability from subsidiaries/JVs and lack of continued capex in upstream, consolidated net debt has reduced from a peak of Rs 262b in FY17 to Rs 76b in FY20. GSPC Mundra was commissioned in Feb’20 and its ramp up would also contribute to better profitability of the group. The remaining subsidiaries are smaller and would not require much capex going forward. Hence, debt-to-equity is expected to improve going forward, laying to rest concerns that investors may have on the improper use of GUJS’ cash.
Gujarat State Petronet | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs 271.25 | Target: Rs 400 | Upside: 47 percent. The company has a debt of Rs 11.4 billion at present. The management targets to become debt-free in the next three-four quarters. It could reward shareholders by increasing its dividend payout from ~ 12-13% at present. The company’s tryst with upstream investments has not been successful, resulting in its standalone/consolidated net debt rising to a peak of Rs 234b/Rs 277b in FY17. It sold off its stake in the KG basin in FY17 to ONGC and wrote off Rs 149b. It also consolidated its stake in GUJGA with GUJS in FY18. As a result of better profitability from subsidiaries/JVs and lack of continued capex in upstream, consolidated net debt has reduced from a peak of Rs 262b in FY17 to Rs 76b in FY20. GSPC Mundra was commissioned in Feb’20 and its ramp-up would also contribute to better profitability. The remaining subsidiaries are smaller and would not require much capex. Hence, debt-to-equity is expected to improve, laying to rest concerns that investors may have about the improper use of GUJS’ cash.
Wipro | Brokerage: Prabhudas Lilladher | Rating: Buy | LTP: Rs | Target: Rs 474 | Upside: percent. Wipro announced acquisition of Capco, a global management and technology consulting firm in BFS industry for $1.45 Bn, valued at 2x EV/Sales. The transaction is likely to close by 1QFY22. Company expects the transaction to dilute FY22E EBIT margins by 2% & will become EPS accretive by FY24. Capco must have EBIT margins of 10-11%. This acquisition will enable Wipro to become a large scale BFSI player with end-to-end consulting, technology and operations capabilities. Company's new CEO is taking right steps towards the transformation journey, however broking house believe integration benefits may take time to showcase and believe cross selling will also require very a focused & tight integration at execution levels.
Wipro | Brokerage: Prabhudas Lilladher | Rating: Buy | LTP: Rs 426.65 | Target: Rs 474 | Upside: 11 percent. Wipro announced the acquisition of Capco, a global management and technology consulting firm in BFS industry for $1.45 billion, valued at 2x EV/Sales. The transaction is likely to close by 1QFY22. The company expects the transaction to dilute FY22E EBIT margins by 2% and will become EPS accretive by FY24. Capco must have EBIT margins of 10-11%. This acquisition will enable Wipro to become a large-scale BFSI player with end-to-end consulting, technology and operations capabilities. The company's new CEO is taking right steps towards the transformation journey, however, the broking house believes that integration benefits may take time to showcase and believes cross-selling will also require very a focused and tight integration at execution levels.
Rakesh Patil
first published: Mar 11, 2021 09:28 am

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