We have collated Diwali stocks picks from various brokers. The same are as follows:
1. Axis Bank - Buy
Current Market Price (CMP): Rs 1,184
Target Price (TP): Rs 1,476
Upside Potential: 25%
Axis Bank has increased its CASA market share multi-fold over the past nine years (4.6% as of FY2012) on the back of robust branch and ATM network expansion. Going forward as well, an annual addition of 250+branches is expected to lead to a 30-50bp increment in CASA market share every year. We maintain our Buy recommendation on the stock with a target price of Rs 1,476.
2. Crompton Greaves - Buy
Current Market Price (CMP): Rs 125
Target Price (TP): Rs 145
Upside Potential: 16%
Crompton Greaves (CG), part of the USD 4 billion Avantha Group, is one of the leading players in the power T&D equipment business in India. The company operates across three segments - power systems, consumer products and industrial systems. We maintain our positive stance on the company. We have assigned an EV/sales multiple of 0.7x to arrive at a target price of Rs 145, implying on upside 16% from the current levels.
3. ICICI Bank - Buy
Current Market Price (CMP): Rs 1,050
Target Price (TP): Rs 1,270
Upside Potential: 21%
ICICI Bank's substantial branch expansion (from 955 branches at the end of 3QFY2008 to 2,772 branches by 2QFY2013) and strong capital adequacy at 18.3% (tier-1 at 12.8%) have positioned it to gain CASA and credit market share, respectively. We maintain our Buy view on the stock with target price of Rs 1,270, valuing the core bank at 2.2x FY2014E P/ABV and assigning a value of Rs 153to its subsidiary.
4. Lupin - Buy
Current Market Price (CMP): Rs 567
Target Price (TP): Rs 652
Lupin is one of the highest filers of ANDAs in the Indian pharmaceuticals industry. As of FY2012, the company's cumulative filings stood at 173, of which 64 have been approved. Lupin plans to launch 20 products in the US in FY2013 and another 80 products over the next three years, including nine exclusives. We maintain our Buy rating on the stock with a revised target price of Rs 652.
5. Tata Steel - Buy
Current Market Price (CMP): Rs 392
Target Price (TP): Rs 481
Upside Potential: 23%
Tata Steel has completed its 2.9million-tonne expansion program at the Jamshedpur plant. The product mix constitutes 2.5million tonne of hot rolled coil (HRC) and 0.3million tonne of slabs. We expect this expansion to contribute Rs 25 billion per annum to the company's consolidated EBITDA, once the new plant reaches optimum capacity utilization, as it will be backed by captive iron ore. We maintain Buy on the stock.
6. Wipro - Buy
Current Market Price (CMP): Rs 351
Target Price (TP): Rs 421
Upside Potential: 20%
Wipro has operating margin levers such as improving utilization level and increasing offshore revenue. Wipro's utilization level is currently at 66.8%, which is almost at its historic low levels. We believe that the step taken by Wipro to hive off its non-IT business is positive for its shareholders. We value the stock at 15x FY2014E EPS of Rs 28.1, which gives us a target price of Rs 421 and recommend it as one of our top picks with Buy rating.
7. D B Corp - Buy
Current Market Price (CMP): Rs 210
Target Price (TP): Rs 259
Upside Potential: 23%
DB Corp is one of the leading publishing houses in India, with seven newspapers and 65 editions in four languages across 13 states. The company has an advertising focused revenue model with average cover prices being the lowest among peers at Rs2.6. Maintain our Buy view on the stock with a target price of Rs 259.
8. MRF - Buy
Current Market Price (CMP): Rs 10,169
Target Price (TP): Rs 12,884
Upside Potential: 27%
MRF is a market leader in the tyre industry with a 30% market share. The company is present across all categories of tyres, with an installed capacity of 3.2cr tyres. MRF also exports tyres to over 65 countries in America, Europe, Middle East, Japan and the Pacific region. We maintain our Buy rating on the stock with a target price of Rs 12,884 based on a target PE of 9.0x for SY2013E.
9. United Phosphorous - Buy
Current Market Price (CMP): Rs 114
Target Price (TP): Rs 170
Upside Potential: 49%
United Phosphorus (UPL) figures among the top five generic agrichemical players in the world, with a presence across major markets such as the U.S., EU, Latin America and India. Over FY2012-14E, we estimate UPL to post a 10% and 18.4% CAGR in its sales and PAT, respectively. Currently, the stock is trading at an attractive valuation of 6.7x FY2014E EPS. Hence, we maintain our Buy view on the stock with a target price of Rs 170.
10. Alembic Pharma - Buy
Current Market Price (CMP): Rs 68
Target Price (TP): Rs 91
Upside Potential: 34%
The company's domestic formulation business which contributed 54% to its total sales in FY2012, with 70% of its revenue coming from the acute segment, has at least grown in line with the industry growth rate, before the share of the high growth chronic segment improves from the current levels of 30%. For FY2012-14, we expect the domestic formulation business to grow at 14.0% CAGR. We maintain our Buy recommendation on the stock.
11. Siyaram Silk Mills - Buy
Current Market Price (CMP): Rs 316
Target Price (TP): Rs 366
Upside Potential: 16%
Siyaram Silk Mills (SSM) is the largest manufacturer of blended fabrics in India. The company enjoys a strong brand presence across the country, with brands such as Siyaram's, Mistair, MSD, J. Hampstead and Oxemberg in its kitty. At the current market price of Rs316, the stock is trading at a PE of 4.3x its FY2014E earnings. We maintain our Buy rating on the stock with a target price of Rs 366, valuing the stock at 5x FY2014E earnings.
12. Spicejet - Buy
Current Market Price (CMP): Rs 34
Target Price (TP): Rs 43
Upside Potential: 27%
SpiceJet has the lowest debt amongst all listed players at Rs 10.09 billion, compared to Kingfisher Airlines (Rs 87.19 billion) and Jet Airways (Rs 131.57 billion) as of FY2012. Presence in the high-growth, low-cost segment and having the lowest debt compared to peers makes FDI investment in SpiceJet more lucrative than others. On the valuation front, SpiceJet is trading at EV/sales of just 0.3x FY2014E, lower than its peers. Hence we recommend a Buy rating on the stock.
13. State Bank of India (Buying Range: Rs 2,210-2,150)
SBI is the market leader (18% market share) by a wide margin with a gross advances of Rs 9.45 trillion. It has led the rate cuts and is offering one of the lowest lending rate across the industry. In spite of this, it is maintaining one of the highest NIM at 3.7%. A strong operational performance led by NII enables SBI to cover up for higher provisioning and post decent profitability.
14. Coal India (Buying Range: Rs 348-335)
Coal India (CIL), the largest coal producing company in the world, also enjoys a monopoly status in the Indian domestic market. CIL contributes 80-85% of the country’s total coal output and on the demand side meets 65-70% of domestic consumption requirements. Going forward, CIL is well poised to deliver healthy performance and is a priced asset to be held in one’s portfolio.
15. Lupin (Buying Range: Rs 590-565)
Lupin is well poised to register strong growth in the US generic space as the gap of filing and launches (176 approvals and just 42 launches cumulatively) assures sales traction for a sizable future, add to this, the potential upsides from FTFs and limited competition products (at least 10). We expect sales, EBITDA and PAT to grow at a CAGR of 24%, 27% and 29%, respectively, in FY12-14E. The stock is currently quoting at 18x FY14E EPS of Rs 32.5.
16. JK Lakshmi Cement (Buying Range: Rs 127-120)
JK Lakshmi Cement is a North India based cement company having an integrated cement plant with the capacity of 4.2 MTPA at Sirohi, Rajasthan and 0.55 MTPA each at Kalol (Gujarat) and Jhajjar (Haryana). We remain positive on the stock on account of capacity expansion led volume growth, improvement in margins and return ratios and cheap valuations. It is trading at USD 54/tonne at FY14E capacity of 8.1 MT, which is 55% discount to the current replacement cost.
17. Marico (Buying Range: Rs 205 - 195)
With falling copra prices, margins for the company should expand, going forward. Marico has high susceptibility to copra (CP) and safflower oil (SO) prices as they constitute 40% and 15%, respectively, of its raw material (RM) costs. We remain positive on the stock.
18. Glenmark Pharma (Buying Range: Rs 430-410)
The company is the one of the few generic companies, which enjoys a substantial foothold in therapies like Derma and oral contraceptives in the US market, which has caused strong CAGR of 21% between FY08 and FY12 in the US. We believe the growth story will only get better on the back of robust pipeline of 81 ANDAs approved and 43 ANDAs pending for approval from USFDA. The 43 pending applications include 19 are Para IV filings.
19. Pantaloon Retail (Buying Range: Rs 200-190)
Pantaloon Retail (PRIL), India's largest domestic retailer, has a total operational space of 16.7 million sq ft. Through a series of stake sales (including de-merger of the flagship ‘Pantaloon’ format, Future Capital stake sale, etc) the company plans to raise Rs 25 billion, which will be used towards debt reduction. While we expect PRIL’s topline to grow at a CAGR of 7.8% (FY11-14E), PAT is expected to grow at a CAGR of 41.5% owing to reduced interest costs. We have valued Pantaloon Retail at 0.7x FY14E EV/Sales to arrive at a target price of Rs 248.
Aditya Birla Money
Current Market Price (CMP): Rs 167
The stock currently trades at 1.8x FY13E ABV and 1.6x FY14E ABV. We believe IDFC will get re-rated as its ROE expands and will continue to command premium within its peer group owing to its professional setup, experienced management team and diversified business model. Besides this, the company continues to maintain a cautious stance and has been prudently making provisions to cushion itself against any possible asset quality shocks. We expect a strong outperformance for the stock.
21. ING VYSYA Bank
Current Market Price (CMP): Rs 457
The stock currently trades at 1.4x FY14E ABV and 9.7x FY14E EPS which is attractive, considering the bank’s strong prospects to grow above industry rate with better asset quality & adequate capitalization (no capital raising in the next two years). ING has undergone a significant transformation in its quality of earnings over the past few years under the new management team led by Bhandari. However, the bank trades at a discount to its peers owing to lower return ratios. Going forward, with all levers to improve return ratios in place, we believe the gap in terms of valuation should narrow down and thus presents a strong case for re-rating.
22. Tata Global Beverage (TGBL)
Current Market Price (CMP): Rs 161
For TGBL, overseas business contributes 70% and the company is getting its business model right there, which is clearly visible from turnaround in the Eight O Clock (EOC) coffee business and improvement in performance of tea business in UK, Russia, Poland and Russia. At CMP, the stock is trading at P/E of 22.3x and 19.7x FY13E and FY14E consensus earnings respectively. On P/B, the stock is trading 2.0x and 1.9x FY13E and FY14E consensus book value respectively. We recommend investors to buy the stock.
23. Tech Mahindra
Current Market Price (CMP): Rs 967
Mahindra Satyam (MS) & Tech Mahindra (TM) both have shown tremendous resilience in overcoming their respective headwinds, especially in the last 5-6 quarters.We maintain our positive stance for its consistent performance and strong investments in the next wave of growth areas and geographies.
24. Bajaj Auto
Current Market Price (CMP): Rs 1,867
Bajaj Auto is known for its best in class operating margin (20%) in the Auto OEM space. Since FY09, Bajaj is maintaining its industry best margin for 14 quarters (18-20%) despite headwinds from lower demand export disruption and intense competition Bajaj’s 20%), demand, competition. Bajaj s brand led strategy and superior product mix led by Discover, Pulsar and 3w has helped them to retain the high margins and grow at a healthy pace. Rajiv Bajaj’s high risk taking ability, brand led strategy and clear vision of transforming BAL into GLOBAL BAJAJ in Motorcycle segment augurs well for BAL in the medium to long term.
25. Hindustan Zinc
Current Market Price (CMP): Rs 138
HZL’s integrated business model spanning mining, smelting and captive power, helps place it in the lowest quartile of the global zinc cost curve Low operating costs along with low capex costs enables it to earn strong free cash flows even curve. During lean times and has resulted in a fortress balance sheet. Given substantial cash in the books, high domestic interest rates is a positive for HZL as it would lead to higher non operating income. HZL trades attractively at a P/E and EV/EBITDA of 8.8x and 5.6x FY14E respectively.
26. Cairn India
Current Market Price (CMP): Rs 332
Cairn is the only unregulated play on energy in India. Recently there has been significant increase in reserve estimates and production potential in its Rajasthan block. The Rajasthan block currently is producing 175,000 bopd, which is more than 20% of India’s domestic oil production. Cash as on Sep 2012 stood at Rs 124 billion (20% of current market cap); Cairn has adequate resources and strong internal cash generation to fund its expansion plans. The Company has approved 20% dividend payout ratio recently, which provides an yield of 3%+ at current valuations. At CMP, the stock trades at a P/E multiple of 5.9x on FY13E earnings; On P/B basis it is available at 1.11x & 0.98x on FY13E and FY14E respectively.
Sykes & Ray Equities (SRE)
27. Axis Bank
Current Market Price (CMP): Rs 1,232
Noninterest income clocking strong growth on the back of rise in the Fee income ‐ Retail, along with Agri & SME income. Sequential improvement in CASA Ratio to 40.5%. Continued focus on low cost retail deposits will reduce the cost of funds, going forward. Strong network of 1741 domestic branches and extension counters and 10,297 ATMs. Attractive valuation and strong growth potential makes it a good long investment call.
28. Power Grid Corp
Current Market Price (CMP): Rs 120
Core transmission income improving on the basis of new capacity additions. Higher capex of Rs 2 billion lined up for FY13 and FY14 each. Net profit margins improving ‐ highest amongst the last four years. Powergrid owns and operates more than 95% of India's interstate and inter‐regional electric power transmission system.
29. Engineers India
Current Market Price (CMP): Rs 230
Lower revenues from Lump-sum Turnkey projects on account of sluggish orders -situation likely to improve in H2 FY13. Revenue from Consultancy & Engineering Projects improving sequentially. Debt free government PSU. Better portfolio mix helps in sustaining operating profit and margins. Order book at Rs 43.53 billion and improving sequentially.
30. HCL Technologies
Current Market Price (CMP): Rs 616
HCL Technologies is a global technology company primarily engaged in providing a range of software services, business process outsourcing and infrastructure services. A sale has been growing 30% YOY and PAT at 35% YOY. The margins have expanded over past years and FY13 is expected to be even better than FY12. In line with other companies, the management has indicated that, the headwinds against the sector persist in the form of uncertain global economic scene. However, HCL has been penetrating deeper into its clients by offering diverse services. The company is expected to be outperformer in the IT sector looking at its estimated sales growth rate and valuation parameters. We remain positive on this stock.
31. Sesa Goa
Current Market Price (CMP): Rs 176
Sesa Goa is India's largest producer and exporter of iron ore in the private sector. Sesa Goa has iron‐ore reserves and resources of 374mt in Goa and Karnataka. The company has grown organically and inorganically in past and expected to do in future. The company has recently approved merger of its group company Sterlite Industries & others into itself to bring consolidation and synergies. This expected to be positive for the group. SESA has a strong focus on increasing reserves over 2‐3 years from the existing 374mt. Sesa has received concurrence from CEC to reclamation and rehabilitation plan for Chitradurga, Karnataka mines for 2.29mtpa capacity. The final approval from Supreme court is awaited. Given the strategic importance of the company for the nation, we believe that the current dark clouds over the counter would get clear and the company can then regain its prime position.
32. Coal India
Current Market Price (CMP): Rs 348
Coal India is the largest coal producing company in the world based on their raw coal production. Al h Also, they are the largest coal reserve holder in the world based on their reserve base. Coal India accounts for 80 per cent of the domestic production. CIL has access to 64.3b tonnes of resources, the largest in the world. Of this, 52.4b tonnes are proven based on ISP guidelines, representing 6% share of the global proven reserves. CIL offers much higher earnings visibility than its sector peers. CIL's profitability and earnings growth are more linear given strong demand from power & other industries and notified price regime. Coal is aggressively looking to increasing is production capacities both domestic and internationally. Coal India would double its production capacity in Chhattisgarh to 220 MT by 2017 if rail connectivity is established. We remain extremely bullish on the company.
33. Gujarat State Petronet
Current Market Price (CMP): Rs 75
GSPL is first company in India to transport natural gas on open access basis and is a Pure Natural Gas Transmission Company. A consortium led by GSPL plans to invest nearly Rs 120 billion over the next three years. The investment is to create three cross‐country natural gas transmission pipelines totaling around 4,000‐km in length. GSPL’s turnover is highly linked to availability of gas. On account of subdued domestic gas output, GSPL has not been able to deliver volume growth over the last 8‐10 quarters. We expect that the domestic gas production has hit its trough and we can only see a turnaround in the production going forward which will automatically reflect in GSPL numbers. Hence we remain positive.
Current Market Price (CMP): Rs 22.3
NHPC, with an installed capacity of 5.2GW, is one of the largest organizations in the field of hydro power development in the country. Currently NHPC is facing challenges in commissioning its planned capacity on account of various clearance issues. But according to our estimations these challenges have delayed the things but have not dent it. Apart from these, factor like regulated business model, tariff hikes and robust capacity addition in next 2 years will prove to be key positive triggers for the counter. Present cheap valuation at 0.96 P/BV offers a good opportunity for investment.
35. Oberoi Realty
Current Market Price (CMP): Rs 279
Premium Realty player in the Mumbai residential, commercial and retail space. Two mega projects expected to be launched in FY13. Oberoi is expected to successfully grow with momentum with planned projects and future launches. With zero debt and cash balance of Rs 13 billion, it is expected to successfully exploit opportunities for future projects, when its peers are deleveraging due to high debt. Investment properties which comprise of Retail, Hospitality and Commercial rental portfolio offer regular and gradually increasing revenue High revenue visibility in ongoing projects and upcoming launches encourage us to remain positive on this stock.
36. Reliance Industries
Current Market Price (CMP): Rs 801
Reliance Industries is the largest private player in the refining, petrochemical and E&P sectors in India. It is also among the largest integrated petrochemical producers globally and has made significant investments in US shale gas. FDP approvals are key to arrest the production decline and result in a substantial production increase in KG‐D6 basin. US Shale gas investment is expected to contribute 10‐12% to EBITDA in 3 years. Overall, we remain positive on this company.
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