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YES Securities bets on these 10 stocks for up to 43% upside; do you own any?

Nippon Life, Polycab India and Kotak Mahindra Bank among stocks picked by YES Securities
Nov 2, 2020 / 11:30 AM IST
Sensex
Last week, Indian indices lost over 2 percent amid weak global cues. The upcoming US Presidential Election, rising COVID-19 cases in Europe and the US and lack of fiscal stimulus kept the investors on the edge. At this juncture, experts see no clear trend in the market and are adopting the wait and watch mode to see how the aforementioned events play out. Despite the directionless trade, YES Securities is bullish on these 10 stocks:
Nippon Life Asset Management | Rating: Buy | LTP: Rs 271 | Target: Rs 364 | Upside: 34 percent Q2 FY21 results in line with estimates, attractively priced at FY23E P/E of 21.6x. Broking house remain positive on the stock considering expectations of strong equity market performance, NAM gaining market share under the new promoters, costs control will narrow down the financial performance gap when compared with peers, and valuations are attractive at 21.6x FY23E earnings. The estimates for FY21 have been raised by 10% mainly on the back of higher other income.
Nippon Life Asset Management | Rating: Buy | LTP: Rs 271 | Target: Rs 364 | Upside: 34 percent | Q2 FY21 results were in line with estimates. The broking house remains positive on the stock considering expectations of strong equity market performance, NAM gaining market share under the new promoters, costs control will narrow down the financial performance gap when compared with peers, and valuations are attractive at 21.6x FY23E earnings. The estimates for FY21 have been raised by 10 percent mainly on the back of higher other income.
M&M Financial Services | Rating: LTP: Rs 122 | Target: Rs 175 | Upside: 43 percent Broking firm almost retain earnings estimates for FY21/22 and reiterate their positive stance on stock. While significant stock of Stage-2/potential restructuring pool (7-8%) has driven some increase in credit cost expectations, the sustained control on cost mitigates this impact at the earnings level. Given procyclicality of the franchise, significant management overlay on ECL provisions, healthy capitalization post rights issue, worst of growth, credit cost & liquidity conditions behind, it estimate earnings and return ratios to bounce back strongly from FY22. Despite embedding much higher than regulatory provisioning on the potential restructuring pool, Yes Securities expect MMFS to deliver average RoA of 2.2-2.3% over FY21-22. Current low valuation at 1x FY22 P/ABV, while adequately factors near-term concerns/uncertainty, fails to capture a palpable sharp recovery in growth and profitability from the next fiscal.
M&M Financial Services | Rating: LTP: Rs 122 | Target: Rs 175 | Upside: 43 percent | The broking firm almost retain earnings estimates for FY21/22 and reiterated their positive stance on the stock. Given procyclicality of the franchise, significant management overlay on ECL provisions, healthy capitalisation post rights issue and the worst of growth, credit cost & liquidity conditions behind, it estimates earnings and return ratios to bounce back strongly from FY22. Despite embedding much higher than regulatory provisioning on the potential restructuring pool, Yes Securities expect MMFS to deliver average RoA of 2.2-2.3% over FY21-22. 
ICICI Prudential Life | Rating: Buy | LTP: Rs 403 | Target: Rs 537 | Upside: 33 percent Yes Securities remain positive on ICICI Pru Life, given its strong delivery in terms of VNB margins (highest amongst listed peers). With benefits of base effect (ICICI Bank focusing only on protection, annuities and ULIPs from Jan 2020), APE growth should come back from Q4 FY21. Valuations are attractive at FY22E P/EV of 2x. Reiterate as top pick.
ICICI Prudential Life | Rating: Buy | LTP: Rs 403 | Target: Rs 537 | Upside: 33 percent | YES Securities is positive on ICICI Pru Life, given its strong delivery in terms of VNB margins (highest amongst listed peers). With benefits of base effect (ICICI Bank focusing only on protection, annuities and ULIPs from Jan 2020), APE growth should come back from Q4 FY21. Valuations are attractive at FY22E P/EV of 2x. 
SBI Life Insurance | Rating: Buy | LTP: Rs 769 | Target: Rs 1,006 | Upside: 31 percent Broking house remain positive on SBI Life with consistent performance on the protection business and revival in the ULIP business. It continues to focus on extracting more from its bancassurance and agency channels. Limited presence on the online platforms, however, is a dampener. The stock trades at FY22E P/EV of 2.1x, which we find attractive. It maintain estimates and recommend buy with a 1-year price target of Rs 1,006.
SBI Life Insurance | Rating: Buy | LTP: Rs 769 | Target: Rs 1,006 | Upside: 31 percent | The broking house remains positive on SBI Life with consistent performance on the protection business and revival in the ULIP business. It continues to focus on extracting more from its bancassurance and agency channels. Limited presence on the online platforms, however, is a dampener. The stock trades at FY22E P/EV of 2.1x, which YES Securities find attractive. It maintained estimates and recommended buy with a one-year price target of Rs 1,006.
Kotak Mahindra Bank | Rating: Buy | LTP: Rs 1547 | Target: Rs 1,670 | Upside: 8 percent Yes Securities raise FY21/22 earnings and ABV estimates by 10-12% and 2.5-3% respectively on the back of material upgrade in PPOP expectations (higher NII and lower cost growth now) and significant reduction in credit cost assumption. It estimate the stand-alone bank to deliver 20-22% earnings CAGR on a 6-7% loan CAGR over FY20-22 because of expansion in core PPOP margin. It see no deterioration in RoA for the current year despite higher provisions and expect profitability to improve to life-time high in FY22. Expect valuation to re-rate from current 3x FY22 P/ABV is response to likely continuation of non-linear earnings growth. Upgrade rating to buy and 12m price target to Rs 1,670.
Kotak Mahindra Bank | Rating: Buy | LTP: Rs 1547 | Target: Rs 1,670 | Upside: 8 percent | YES Securities raiseD FY21/22 earnings and ABV estimates by 10-12% and 2.5-3% respectively on the back of material upgrade in PPOP expectations (higher NII and lower cost growth now) and a significant reduction in credit cost assumption. It estimates the stand-alone bank to deliver 20-22% earnings CAGR on a 6-7% loan CAGR over FY20-22 because of expansion in core PPOP margin. 
Torrent Pharma | Rating: Buy | LTP: Rs 2,566 | Target: Rs 3,200 | Upside: 24 percent Domestic market will increasingly reward players with larger brands- Torrent to maintain growth of big bands like Shelcal and Losar which will continue to gain share. Margins can surprise on upside as MR productivity to touch Rs 1mn per MR per month; current revenues per MR already one of the highest in industry. Yes Securities raised FY22 EPS by ~12% to Rs 91 on improved margin assumption and now are ~5% ahead of consensus. Upgraded Torrent to buy from sell with revised target price of Rs 3,200 (vs Rs 2,030 earlier) based on 35x FY22 PE; solid FCF yield of ~3.5% lends support.
Torrent Pharma | Rating: Buy | LTP: Rs 2,566 | Target: Rs 3,200 | Upside: 24 percent | Domestic market will increasingly reward players with larger brands. Torrent will maintain the growth of big bands like Shelcal and Losar which will continue to gain share. Margins can surprise on the upside as MR productivity to touch Rs 1million per MR per month; current revenues per MR already one of the highest in industry. 
Polycab India | Rating: Buy | LTP: Rs 920 | Target: Rs 1,118 | Upside: 21 percent Yes Securities maintain positive stand on Polycab post the Q2 results. The sturdy performance reported by the company in Q2 despite the challenges witnessed by the industry is quite encouraging. It believe the company would be able to gain market share in the FMEG segment as it keeps on investing into increasing reach, brand visibility and into new products. Polycab’s robust balance sheet and strong brand recall would allow it to invest into this business (R&D and A&P) and would accelerate market share gains in the FMEG space. Broking house believe valuation re-rating would continue led by the strong brand presence, robust balance sheet, healthy return ratios and increasing share of B2C FMEG business. Current valuations of 15.3x FY23E P/E appear reasonable. It maintain buy rating on the stock with a revised target price of Rs 1,118 (20x Sept’ 22 P/E).
Polycab India | Rating: Buy | LTP: Rs 920 | Target: Rs 1,118 | Upside: 21 percent | YES Securities maintainED positive stance on Polycab post the Q2 results. The sturdy performance reported by the company in Q2 despite the challenges witnessed by the industry is quite encouraging. It believes the company would be able to gain market share in the FMEG segment as it keeps on investing in increasing reach, brand visibility and into new products. Polycab’s robust balance sheet and strong brand recall would allow it to invest in this business (R&D and A&P) and would accelerate market share gains in the FMEG space. 
RBL Bank | Rating: Buy | LTP: Rs 174 | Target: Rs 230 | Upside: 32 percent Capping of potential losses in the high-risk businesses of Cards and MFIs, improvement in rating profile and less vulnerability of the corporate portfolio and impressive handle over cost leads us to upgrade earnings estimates (10-13% for FY21/22) and rating (from add to buy) on the stock. With normalization of credit cost in key product lines, broking house expect RoA to bounce back sharply to 1.3%. The in-process capital raise will bolster CET-1 to 17.5%, thus strengthening the balance sheet and positioning the bank well to pursue growth in ensuing quarters. Overall, it believe that Q2 FY21 performance and commentary improves the visibility of 1%+ RoA delivery in FY22 and this should uplift valuation.
RBL Bank | Rating: Buy | LTP: Rs 174 | Target: Rs 230 | Upside: 32 percent | Capping of potential losses in the high-risk businesses of Cards and MFIs, improvement in rating profile and less vulnerability of the corporate portfolio and impressive handle over cost leads us to upgrade earnings estimates (10-13% for FY21/22) and rating (from add to buy) on the stock, YES Securities said.
Axis Bank | Rating: Buy | LTP: Rs 492 | Target: Rs 586 | Upside: 19 percent Yes Securities retain buy on Axis Bank and increase price target to Rs 586 (Rs 550 before) underpinned by earnings/BV upgrade. Earnings have been revised upwards by lifting NIM and core fee growth assumptions. Considering management’s assessment of probable restructuring pool and encouraging collection trends (demand resolution at 97% in Oct), we believe that downside risks to our prevailing credit cost estimates has diminished. Hence, bank’s return ratios will most likely recover sharply in FY22. The stand-alone bank trades at 1.4x FY22 P/ABV, and represents an attractive risk-reward.
Axis Bank | Rating: Buy | LTP: Rs 492 | Target: Rs 586 | Upside: 19 percent | YES Securities retained buy on Axis Bank underpinned by earnings/BV upgrade. Earnings have been revised upwards by lifting NIM and core fee growth assumptions. Considering management’s assessment of probable restructuring pool and encouraging collection trends (demand resolution at 97% in Oct), the brokerage believes that downside risks to their prevailing credit cost estimates has diminished.
Dr Reddys’ Laboratories | Rating: Add | LTP: Rs 4,888 | Target: Rs 5,270 | Upside: 8 percent Traction in US can persist on back of 30 launches in FY21 and niche/complex launches beyond next fiscal; healthy growth in Europe and other geographies. Commendable control over costs in past 3 years and we expect a moderate 4-6% rise in ex-COGS & R&D costs; any structural savings in SG&A (ex-R&D) can lead to surprise on margins. India business to benefit from COVID drugs in FY21 plus as yet unquantified vaccine opportunity; albeit export markets will continue to be key driver of revenues and reason behind margin sustaining ~25-26% in FY22. We raise FY22 estimates by 12% and include Rs300/share Revlimid NPV in our revised target price of Rs 5,270.
Dr Reddys’ Laboratories | Rating: Add | LTP: Rs 4,888 | Target: Rs 5,270 | Upside: 8 percent | Traction in the US can persist on back of 30 launches in FY21 and niche/complex launches beyond next fiscal, healthy growth in Europe and other geographies. India business will benefit from COVID drugs in FY21, albeit export markets will continue to be the key driver of revenues and reason behind margin sustaining 25-26% in FY22.
Rakesh Patil
first published: Nov 2, 2020 11:30 am

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