TCS, L&T, Ranbaxy top brokers' favourites list

MUMBAI: Tata Consultancy Services (TCS), Larsen and Toubro (L&T) and Ranbaxy figure on top of the list of stocks that broking firms are asking investors to buy even as the markets slide.

Local broking firms have been recommending these stocks, saying all three companies are trading at attractive valuations. TCS continues to remain a favourite among brokers after it reported a rise in consolidated net profit for the quarter to December 2010 on the back of growth driven by the banking, finance, services and insurance segment and signs of revival in the US economy. In the quarter, the profit of the company rose 29.9% to `2,369.8 crore over the Rs 1,823.9 crore a year ago. It posted earnings of Rs 12.11 a share in the quarter, registering a growth of 29.9% growth over a year ago.

Brokers have made out a case for L&T saying the market appears to have discounted good results because while its revenue grew robustly in the December quarter, the pace of order inflows appeared to confirm market fears about a slowdown in new projects for the sector. L&T reported a robust topline growth of 40.5% YoY to Rs 11,413 crore, mainly on account of pick up in the engineering and construction segment that recorded a YoY growth of 45% in topline to Rs 9,831 crore. However, analysts say L&T has a healthy order book, which provides revenue visibility for the next few years. Hence, even if the company misses inflow guidance of 25%, sluggish order inflow is not a long-term concern.

After the recent correction of about 20%, in the markets, most broking firms that ET polled said it was a good opportunity for long-term investors to enter the stock at current levels.

On Ranbaxy, the view of broking firms was that the recent launch of generic Aricept with exclusivity will boost cash flows. Investor attention will primarily be focussed on its ability to launch Lipitor as the company will be able to monetise the opportunity in some form. Also, Ranbaxy will benefit from restructuring of EU operations, divestment of manufacturing facilities in China & Vietnam and overall SGA cost reduction, several broking firms which participated in the ET poll said.

Analysts maintain that the key downside risks for Ranbaxy include setbacks on its patent challenge pipeline in the form of litigation wins by other generic companies and pricing pressures in US and Europe markets.

However, these three companies have not been able to outperform the benchmark indices in the past three months. While the Sensex lost 7.5%, TCS and L&T shed 12.6% and 15.4% respectively while Ranbaxy fell marginally during the same period. Broking firms also remained positive on RIL, Sterlite Industries, Tata Steel, M&M, Hindalco, Tata Motors, HCL Technologies, YES Bank, Gail, TITAN, Glaxo and Sun Pharma.