8 stocks that brokerages say can deliver solid gains in Samvat 2077

NEW DELHI: With Diwali drawing near, brokerages have come out with their stock picks that they believe can deliver solid returns in the next Samvat year. These stocks, they say, can deliver up to 50 per cent returns in the coming Hindu accounting calendar, as market sentiment improves from here on.

“From extreme pessimism in March, the current stock market recovery is incredible, and is now inching closer to the previous lifetime high. Notwithstanding the uncertainty on many economic fronts, the worst is over for the capital market. A Covid resurgence, as some fear, may very well trigger fresh panic, but inaction on the investment front, simply fearing the worst, is never justified,” YES Securities said.

“Calendar 2020 has largely been about survival, both health wise and finance wise. It is also an opportune time to tweak and tighten your portfolio for the next bull run. Vikram Samvat 2077 could well be akin to the year 2003, from a market standpoint,” the brokerage said.


Here's a list of stocks that brokerages are recommending for Samvat 2077:-

IDBI Capital Markets
Alembic Pharma: potential upside 41% | Bharti Airtel: 37% | Johnson Control: 36%

Alembic Pharma: The drugmaker, which derives 87 per cent of the business from formulations, is trading at a PE of 17.5 times FY21 Bloomberg EPS estimates, which IDBI Capital Markets said is attractive. US sales, which accounted for 43 per cent of FY20 revenues, grew at 12 per cent annually CAGR over FY16-20 to Rs 2,000 crore on the back of consistent product launches, including limited competition products. Despite being a late entrant, the company has done reasonably well with a product basket of 198 ANDA filings (67 pending final approval). For FY21, the company plans to launch 15-20 new products, the brokerage said.

Bharti Airtel: The brokerage noted that the telco has a strong market share in the premium subscribers i.e. postpaid and high pre-paid segments, which place it well to take advantage of increasing data consumption and expected increase in Arpu (average revenue per user). Bharti, it said, is trading at EV/Ebitda of 7 times FY22 and 6.1 times FY23. Its PE of 33 times FY22 and 19 FY23 EPS based on Bloomberg consensus provides extremely good risk-reward, the brokerage said. "The total AGR payment for Bharti is Rs 44,000 crore and it has already made payment of Rs 18,000 crore. We believe that Bharti is well placed to make the balance payment over the stipulated time period," the brokerage said.

Johnson Controls - Hitachi Airconditioning India: The company is a Indian subsidiary of the joint venture between Jonson Controls, USA and Hitachi Appliances, Japan. IDBI Capital Markets noted that the government has taken several initiatives to promote domestic manufacturing of ACs and its components such as phased manufacturing programme, review of FTA’s and Quality Control Order for component imports.

“These schemes will help in reducing import dependence and promote indigenisation through backward integration. JCH-IN stands to gain due to its focus on backward integrated manufacturing units," IDBI Capital said. "Initially, the company had a strong presence only in the premium category. With the launch of new model ‘Kaze’ in split and window AC it entered the mass premium segment to reach out to more customers. It has added a lot of retail touch points in tier 2&3 cities," the brokerage said.

YES Securities
KPR Mill: Potential upside 50% | Manappuram Finance: 45% | Redington: 41%

KPR Mills: The company is currently focusing more towards betterment of its portfolio mix - garmenting revenue’s share has increased from 28 per cent in FY17 to 42 per cent in FY20 whereas the share of yarn and fabric business has dipped from 57 per cent in FY17 to 42 per cent in FY20.

"We expect the mix to get better even further with incremental sales volume coming from 42 million garmenting unit per annum in the medium term. In FY19, KPR mill launched a retail brand FASO. As the company further moves down the value chain from Yarn & Fabric to garmenting and retail, we may see stock getting re-rated. At prevailing prices, the stock is trading at an attractive valuation of 8.5 times FY23 P/E and 5.7 times FY23 EV/Ebitda,” the brokerage said.

Manappuram Finance: The brokerage believes that the recent price correction in the stock was largely driven by concerns stemming from tonnage de-growth in the June quarter and higher loan-to-value (LTVs) allowed to banks. However, the concurrent positive trends in collateral and customer acquisition should allay these investor concerns, the brokerage said.

"The increasing share of gold loans and its rising profitability fortifies MGFL’s already strong capital and liquidity position. We estimate 10-12 per cent consolidated AUM CAGR over FY20-22, which is satisfactory in the current scenario and would be better than most other NBFCs. RoE delivery is likely to be sturdy at 24-25 per cent in FY21/22. In this context, stock’s valuation is attractive at 1.6 times price to adjusted book value.

Redington India: The company's working capital days got reduced to just 17 days in June quarter, largely due to aggressive collections, efficient ordering and better supplier credit. YES Securities said that the company's ability to manage working capital very well has led to generation of positive free cash flow at a consolidated level in June quarter. The stock looks attractive at valuation of 7.3 times FY23 earnings per share, the brokerage said. "Having a presence as a distributor for a large number of products and provider of services and solutions, Redington has significant opportunities available. Redington is developing solutions and services offerings in niche technology which is likely to create additional revenue streams besides the traditional distribution model," the brokerage said.

Sharekhan:
Kotak Mahindra Bank | L&T

Unlike other brokerages, Sharekhan did not give targets or upside potential for the stocks, but suggested that the picked stocks have all the ingredients to outperform the broader market indices over the next 12 months. The stocks would also withstand volatility and emerge stronger, Sharekhan said. Among the stocks meeting its 3R matrix i.e. right sector, right quality and right valuations are:

Kotak Mahindra Bank: The brokerage said the improving liability profile for Kotak augurs well for long-term sustainability. It noted that Kotak's CASA ratio of 57 per cent is highest among peers, which indicates the strength of the bank's liability franchise.

"Kotak has been able to consistently grow and gain market share in advances as well as its deposits in the last 5 years. This is despite maintaining a cautious stance, a key differentiator, of the bank’s quality of management. KMB’s strong operating metrics, prudent and agile leadership team, well-capitalised balance sheet and the quality of its subsidiaries provide long-term value. The recent capital issue provides the bank with wherewithal to pursue inorganic opportunities as well," Sharekhan said.

Larsen & Toubro: Sharekhan said L&T is better poised to ride any uncertainties owing to multiple levers such as a strong business model, diversified order book, and healthy balance sheet. It expects L&T revenues and PAT to clock a growth of 11 per cent and 22 per cent over 2021-23.

"The company remains at the forefront to reap benefits from the recently-announced Atma Nirbhar Bharat scheme from the government with its diversified businesses across sectors like defence, infrastructure, heavy engineering, IT (digitisation). Order inflow pipeline remains robust and provides healthy visibility for bagging orders ahead. The company also remains focussed to divest its non-core assets which will enhance the balance sheet and aid the RoCE expansion further," Sharekhan said.