In the past year, the Sensex has risen 2.5 per cent while BSE’s mid- and small-cap indices have declined 14 per cent and 21 per cent, respectively.
Samvat 2074 — the period from last Diwali to this — has been a tough year for investors with the stock market tumbling from their highs. In the past year, the Sensex has risen 2.5 per cent while BSE’s mid- and small-cap indices have declined 14 per cent and 21 per cent, respectively. Many smaller shares have fallen as much as 50-70 per cent from their highs, eroding the value of several portfolios. The next few months are likely to be challenging as well. In such an environment, it would be prudent to hold stocks that could stay resilient in testing times. ET spoke to five brokerages for their top picks for Samvat 2075:
Axis Securities
Mold-Tek Packaging Improved volume outlook from Paints and Food & FMCG customers with growing pie of F&F aiding strong margin delivery. We believe, with rising contribution from F&F segment, better off-take from paints sector, full scale operationalization of RAK plant, new product launches and consistent increase in share of IML products, MTEP can report 31 per cent earnings CAGR over FY 2018-20. We revise our estimates and assign it a 20 times PE basis FY20E EPS.
Trident The company is the flagship company of Trident Group, with business interests in home textiles and paper. The company is trusted partner to the top global retailers & fashion houses adding premium customers globally present in USA, UK, Italy, France, Japan, Australia amongst other countries. Company is in process to reduce its debt burden thus making its balance sheet lighter. The net debt/equity ratio is already at 0.7 and the net debt stands at Rs 2,000 cr with LT debt at Rs 1,539 crore at the end of Q2FY19. We expect the return ratios to improve as debt falls and efficiency parameters improve.
Titan While, we are cognizant of rich valuations for consumer and retail stocks, we believe these will continue to sustain the premium levels for companies offering highest visibility of earnings growth over medium to longer term. Revenue growth opportunity of 20 per cent CAGR over the long term is immense and far superior to peers. Further, with an up-trending margin profile driven by growing revenue from SSSG makes us believe in the structural growth outlook of Titan.
HDFC Securities
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Cummins India The company is well placed to capture the broad revival in industrial and infrastructure capex in India, with its bestin-class product portfolio, wide distribution reach, and technological leadership. With the kind of technological leadership CIL has in the Indian market, along with a healthy balance sheet and strong parentage, it deserves a premium over its peers in terms of valuation. We feel investors could buy the stock and add on dips to Rs 597–605 for a target of Rs 817.
Cyient A niche engineering services, strong client relationships, timely acquisitions to support its roduct solutions profile, strong financial profile with minimal debt, and healthy debt protection metrics and liquidity makes a case for investment in its stock. It has some deals in the negotiation phase, and the overall deal pipeline remains good. We feel investors could buy the stock at the LTP and add on dips to Rs 545–555 (11x FY20E EPS) for a target of Rs 748 (15x FY20E EPS).
Hindustan Oil Exploration The company is debt free, with net cash balances of Rs 35 cr and Rs 53 cr invested in its subsidiary. Over the next two years, company expects significant ramp up in volumes which would ensure growth visibility going ahead. Given strong management, a robust balance sheet and stellar growth expected over the next two-three years, we recommend buy at Rs 130, and add on dips to Rs 108 with a target price of Rs 177 till next Diwali.
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IIFL
Petronet LNG
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The company is set to benefit from 17 per cent capacity expansion at Dahej terminal to 17.5 mmt by FY 2019 from current 15mmt. We expect revenue and PAT CAGR of 16 per cent and 19 per cent over FY 2018-20 respectively. The stock trades at 10.8 times FY 2020 estimated EPS with discount valuation to its 3-year average. We recommend Buy on the stock with a target price of Rs 256.
Mindtree India’s eighth largest IT services company has strong digital capabilities. The stock has corrected almost 30 per cent since Sep’18 and trades at attractive valuations vs. peers despite better revenue and EPS growth profile. In our view, the correction has factored in the concerns related to recent softness/macros and we reckon that Mindtree is likely to outperform peers like LTI, Mphasis and Hexaware.
Motherson Sumi The company has successfully acquired / integrated 21 companies till date. Hence, it is set to achieve FY 2020 estimated revenue target of $18bn. At current market price, Motherson Sumi trades at 15 times FY 2020 estimated EPS and we believe the recent correction is overdone. We expect consolidated revenue, EBITDA and PAT to register 16 per cent, 29 per cent and 47 per cent CAGR respectively over FY 2018-20. We value MSSL at 18 times FY 2020 EPS and recommend Buy with a target price of Rs 293.
These Diwali picks can light up your portfolio
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Diwali, the festival of lights, is not very far. But clearly, the spark is missing in the market. Everybody is playing with care as the big electoral faceoff in 2019 is seen as a make or break event. Add to that this year's upcoming state elections.
Look across the Atlantic. The US Fed is firmly on track to raise interest rates. A good enough reason why global funds may not be that keen to put their money in India.
In fact, foreigner investors have pulled out $3.1 billion from local stocks this month, the most since January 2008 and $1.5 billion from debt, according to Bloomberg.
Diwali, the festival of lights, is not very far. But clearly, the spark is missing in the market. Everybody is playing with care as the big electoral faceoff in 2019 is seen as a make or break event..
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There are other issues sticking around, including geopolitical worries and the global trade war. The rupee and oil are also known for their nasty surprises. According to IIFL, crude oil is the joker in the pack.
Some leading brokerages say it's a chance not to be missed to pick some high quality stocks. Their conviction bets are a mix of stocks from across sectors.
There are other issues sticking around, including geopolitical worries and the global trade war. The rupee and oil are also known for their nasty surprises. According to IIFL, crude oil is the joker..
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Aurobindo Pharma: This leading global generic company has a robust pipeline, with 487 ANDAs, the second highest among Indian companies. It's pumping in more money to get into complex generic and biosimilar space, which is seen as a driver of its next phase of growth.
HDFC Bank: NIM remains strong and steady at 4.4 per cent on lower cost of funds and credit cost. The private lender has raised Rs 24,000 through a combination of QIP and preferential allotment. Its advances are expected to grow at a healthy CAGR of 22 per cent.
Aurobindo Pharma: This leading global generic company has a robust pipeline, with 487 ANDAs, the second highest among Indian companies. It's pumping in more money to get into complex generic and bio..
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Mindtree: Mindtree, India’s eighth largest IT firm, is falling back on its digital capabilities. The stock has corrected almost 30 per cent since September 2018 and is at attractive valuations despite better revenue and EPS growth profile.
RIL: Petrochemicals remains Reliance Industries' showpiece. It is expected to witness improvement in petrochemicals segment with Refinery off-gas cracker (ROGC) being commissioned and strong polyester and fiber intermediates demand. Reliance Jio continues to surprise with robust subscriber additions and steady improvement in profitability.
Mindtree: Mindtree, India’s eighth largest IT firm, is falling back on its digital capabilities. The stock has corrected almost 30 per cent since September 2018 and is at attractive valuations despi..
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Ashok Leyland: The second-largest CV manufacturer in India and the fourth-largest manufacturer of buses globally is counting big on the assessment that the domestic commercial vehicle (CV) volume growth will stay healthy going forward. Increase in government spending on infrastructure and higher GDP growth are only going to provide more momentum. The truck maker has been consistent in raising its market share in both M&HCV and LCV segments.
Maruti Suzuki India: A household name, Maruti Suzuki is largest passenger vehicles company with an impressive market share of nearly 50 per cent in domestic market with 1.65 million vehicles sold in 2017-18. The brokerage believes that the government’s higher focus on raising rural income and overall increase in per capita income are big positives for four wheeler passenger vehicle industry. But challenges in the near term remain in the form of rising interest rates, firm crude oil prices and a depreciating rupee. But the long term growth story remains intact.
Ashok Leyland: The second-largest CV manufacturer in India and the fourth-largest manufacturer of buses globally is counting big on the assessment that the domestic commercial vehicle (CV) volume gr..
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Aarti Industries: A leading Indian manufacturer of speciality chemicals and pharmaceuticals with a global footprint, Aarti Industries looks to cash in on supply concerns related to China. It has won multi year large orders worth Rs 4,000 crore for 10 years and Rs 10,000 crore for 20 years from two global clients. These orders have the potential to drive up its revenue.
Infosys: India’s second-largest IT services company in terms of export revenue has ramped up its investments and acquired companies such as Fluido, WongDoody and the like to add muscle to its digital capabilities. "With a strong leadership bench, a rise in the value of total contracts signed under the new leadership and better business visibility, we expect Infosys to deliver strong revenue growth in FY2020 as compared to FY2019," said Sharekhan.
Aarti Industries: A leading Indian manufacturer of speciality chemicals and pharmaceuticals with a global footprint, Aarti Industries looks to cash in on supply concerns related to China. It has wo..
ICICI Bank ICICI Bank reported better than expected set of numbers for Q2FY19. ICICI is in the midst of an improvement in the operating environment and is showing healthy signs of earnings normalization. With challenges related to management transition getting addressed, the bank is now focusing on growing its core operating profits.
Britannia Industries Rapidly expanding distribution, continuing investment in R&D, rapid pace of new launches and significant expansion of its own manufacturing indicate the immense confidence that management has on growth prospects. Opportunity beyond biscuits is also substantially high. Continuing premiumization, significant incremental cost savings and a favorable commodity cost outlook mean further EBITDA margin expansion prospects are bright as well.
Exide Industries OEM and replacement demand remains healthy in both automotive and industrial segments. Also, there is a gradual shift away from unorganised to organised players. We believe that the battery industry should benefit the most and grow at a CAGR of 10-12 per cent over the medium-to-long term. We expect Exide to continue gaining market share, backed by new product launches for existing and new applications, and a sharp focus on customer service and marketing infrastructure.
Religare Broking
Asian Paints The Indian paints industry is estimated to grow at a healthy pace of 13 per cent CAGR over the next two years. Further, the recent rationalization in the GST rates in paints could benefit the organized players in the long run. Moreover improved product mix and operating leverage should provide cushion to margins which would mitigate concern of rising crude oil price. We estimate revenue and PAT to grow by 10.9 per cent & 12.2 per cent CAGR respectively over FY 2018-20, driven by steady capacity addition, wide distribution reach and continued efforts towards innovative launches.
Ashok Leyland We believe Ashok Leyland stands to benefit from the upcycle in the commercial vehicle industry given its strong position in the M&HCV and LCV segment. Further, implementation of BS-VI emissions norms from April 2020 would also lead to pre-purchases in H2FY20. Further, the proposed implementation of CV scrappage policy reduces concerns of volume growth post FY20 as it is likely to create an additional demand of ~2-2.5 lakh vehicles. We believe with positive industry growth prospects and Ashok Leyland’s strong brand presence in the CV segment and its focus on diversifying to less cyclical businesses makes it one of our preferred picks.
Godrej Consumer Led by demand uptick and company led initiatives towards constant focus on product innovation, increasing penetration & distribution reach and sustained brand building efforts, we estimate GCPL’s consolidated Revenue and PAT to grow by 12.8 per cent & 16.8 per cent CAGR respectively over FY18-20E. Improving mix and cost efficiency measures should result in steady margin gains. Strong brand equity, low leverage, robust cash flows and healthy dividend pay-outs justify premium valuation. We recommend a Buy on the stock with target price of Rs 897.
