The market delivers double-digit gains in Samvat 2076, and all eyes are on the next 12 months amid rising hopes of recovery in the economy and earnings
India still is not out of woods as far as the Covid pandemic is concerned or its impact on macro or micro is concerned, but try explaining that to markets that are already in ‘post-Covid’ mode. As a result, Indian markets are at all-time highs with a 6-month gain of 38%. This has bode well for Samvat 2076, which saw markets rise by 11% notwithstanding the crash in March. All eyes are now on Samvat 2077 amid rising hopes of recovery in economy and earnings. Top brokerages have come out with their own recommendations in terms of Muhurat, Diwali, and Samvat picks. Here are the popular stock ideas and the reasoning behind them.
* Amaraja Batteries – Entry Rs 760 to Rs 800. Target Rs 925 to Rs 960. The stock has reversed a long term down-sloping trend line (2016 highs) indicating that the long term trend reversal is on the cards.
* MCX – Entry Rs 1530 to Rs 1600. Target Rs 1880 to Rs 2030. With current close, stock has decisively broken out its past five year “Multiple Resistance” at 1400-1500 levels indicating strong come back by bulls.
* Kajaria – Entry Rs 540 to Rs 570. Target Rs 675 to Rs 710. The stock has reversed a down-sloping trendline after retesting a major support at Rs 300 levels indicating strong accumulation at lower levels. The stock continues to make big green bullish candles indicating strong buying momentum.
* APL – Entry Rs 840 to Rs 880. Target 1050 to Rs 1110. On the quarterly chart, the stock has decisively broken out its five years “Consolidation Range” (770-400) at Rs 750 levels indicating strong come back by bulls. This breakout is accompanied with huge volumes indicating increased participation at breakout level.
* Bharti Airtel – Add on dips Rs 400-403. Target Rs 597. Price competition with Reliance Jio, regulatory and technological changes, large capex and regulatory payments and adverse currency movements are key risk. However, there is reason to remain optimistic on its revenue and profitability trajectory as well as cost rationalisation efforts going forward.
* Cadila Healthcare – Add on dips Rs 385-393. Target Rs 508. Domestic and Wellness businesses should grow in high single digits and low-mid teens, respectively. The stabilization in the price erosion in the US generics business coupled with a strong pipeline would drive growth in the US business. It is projected to report 150bps margin expansion led by gross margin expansion and operational efficiencies over FY20-22E. Near term uncertainties and the US FDA issues at Moraiya plant would be an overhang on the stock, until successfully resolved.
* Infosys – Add on dips Rs 1002-1006. Target Rs 1205. Taking into the consideration INR appreciation against the USD, pricing pressure, retention of the skilled headcounts, strict immigration norms and rise in visa costs concern, there is reason to remain optimistic on its revenue and profitability trajectory as well as cost rationalisation efforts with robust execution capabilities, robust balance sheet, steady growth momentum going forward.
* United Spirits – Add on dips Rs 441-451. Target Rs 645. The company has been severely impacted by the pandemic due to the government restrictions. United Spirits being the market leader is expected to recover faster than peers on the back of recovery in trade business, increase in at home consumption, festive season sales, resumption in duty free sales and benign commodity inflation.
* Ramco Cements – Buying range Rs 790 to Rs 840. Target Rs 1000. Though debt levels would rise, debt/EBITDA would improve from 2.8x in FY20 to 1.2x by FY23E. Average cost of interest on debt is 7.3%, much lower than RoCE. Hence, once capex is complete, it would help improve RoE in double digits. Post expansion, the company is expected to generate an EBITDA of Rs 2141 crore in FY23E, implying an inexpensive EV/EBITDA multiple of 9.9x on FY23E earnings.
* SBI Life – Buying range Rs 780 to Rs 810. Target Rs 1000. Competitive product pricing and push from VNB margin is seen leading to growth in embedded value at 14% CAGR in FY21-22E to Rs 34106 crore. There is reason to remain structurally positive on the stock given long term growth potential and lower balance sheet risk. Positive on SBI Life, being a play on growth of life insurance industry led by strong distribution, brand, product mix and operational efficiency.
* Zydus Wellness – Buying range Rs 1740 to Rs 1790. Target Rs 2300. Post consolidation of the Heinz business, the company would be able to cut cost by reducing redundancies at various stages. This would result in faster decision making and give scale benefits to the company. It would be increasing its direct distribution network to reduce the dependency on wholesales network. Further, the company would reduce distributors from 1500 to 800 and implement warehouse optimisation, which would reduce the overall cost of logistics. Expect revenue & earning CAGR of 9.1% & 35.4%, respectively, during FY20-23E.
* Syngene – Buying range Rs 520 to Rs 560. Target Rs 635. The management has maintained its guidance for double-digit revenue growth on the back of continuous client additions, an extension of existing contracts, increasing manufacturing and biological contributions besides currency tailwinds. With elite client additions like Amgen, Zoetis, Herbalife, GSK, etc, and multiple year extension of BMS, Baxter contracts, the company remains well poised to capture opportunities in the global CRO space.
* Bharti Airtel – Target Rs 650. Bharti’s execution has been top-notch in the last few quarters, evident from strong 16% India Mobile EBITDA growth cumulatively in the last two quarters. Robust subscriber adds lead to cumulative ARPU improvement of 5%.
* SBI – Target Rs 300. It is believed that the earnings normalization cycle for SBI has begun and it remains the best play among the PSU banks, on gradual recovery in the Indian economy, with a healthy PCR of 71%, robust capitalization, a strong liability franchise, and improved core operating profitability.
* Hero Motocorp – Target Rs 3700. HMCL is poised for faster recovery over other 2W peers due to its rural-focused portfolio and market leadership in the entry and executive segments. Considering its improved competitive positioning post BS6, HMCL should continue to see good demand with its economy-executive focused portfolio.
* Infosys – Target Rs 1355. It is expected that Infosys will be a key beneficiary in terms of recovery in IT spends in FY22. Infosys remains top pick within the sector given its headroom for margin expansion and strong deal wins.
* Ultratech Cement – Target Rs 5600. The company has a strong pan-India distribution network and preferred supplier status for key infrastructure projects. This places it in a good position to tap into expected growth in both retail and institutional (nontrade) cement demand in India.
* ICICI Bank – Target Rs 525. The bank continues to see strong growth in retail deposits and has succeeded in building a robust liability franchise over the past few years which continues to improve. Business trends are improving, with disbursement reaching pre Covid / higher than pre-COVID levels (in some segments).
* KPR Mills – Target Rs 1105. The company is currently focusing more towards betterment of its portfolio mix ‐
garmenting revenue’s share has increased from 28% in FY17 to 42% in FY20 whereas Yarn and Fabric share has dipped from 57% in FY17 to 42% in FY20. Expect the mix to get better even further with incremental sales volume coming from 42 mn/annum garmenting unit in the medium term (capex: Rs 2500mn; announced
recently). As the company further moves down the value chain from Yarn & Fabric to Garmenting and retail, we may see stock getting re‐rated.
* Manappuram Finance – Target Rs 225. The latest price correction was driven by concerns stemming from tonnage de‐growth in Q1 FY21 and higher LTVs allowed to Banks. However, the concurrent positive trends in collateral and customer acquisition should allay these investor concerns. Increasing share of gold loans and its rising profitability fortifies company’s already strong capital and funding/liquidity position.
* Redington – Target Rs 182. Redington’s working capital days has reduced to just 17 days (in Q1FY21), largely due to aggressive collections (compared to Sales in COVID‐19 period), efficient ordering management to keep inventory at minimum levels, and better supplier credit. Also, its ability to manage working capital very well has led to generation of positive free cash flow at a consolidated level of Rs.23.3 billion (in Q1FY21). Additionally, the company is net cash positive and its ROE is likely to remain at 20%+ going forward.
* Kansai Nerolac – Target Rs 700. Positive on Kansai largely backed by expected improvements in structural
drivers such as shift towards organized sector, housing push in semi‐urban and rural areas, shorter painting cycles, governments focus on increasing rural income and increased consumer awareness in rural areas. Lower raw material prices to aid in higher Gross Margins and most part of negative impact on account of lower absorption of Fixed costs would be negated by higher GM’s for remaining part of FY21. Expect ROE to move to reach 17% by FY23E.
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