The December quarter earnings were largely in line with analyst expectations. Lack of any surprises, neither negative nor positive, kept the market pretty much stable.
At the end of the earnings season, the BSE Sensex and Nifty50 remained at similar levels that were seen before the earnings season.
Profitability was largely supported by the government's lowering of corporate tax rate, while the topline was nearly flat indicating weak demand environment and soft commodity prices. Operating performance was better with margins expanding due to lower commodity prices.
Going ahead, the earnings recovery is expected to be gradual on the back of negative impact from the coronavirus spread, said brokerages which raised benchmark indices target marginally after the Q3.
"Going forward, amid a pragmatic Union Budget 2020-21 that further carried the government's vision of developing India as a manufacturing hub thereby promoting investments and generating jobs, we expect corporate earnings to grow at a healthy CAGR of 18.6 percent in FY19-22. Rolling over the valuations to FY22E, we are upgrading index target and now value Nifty at 13,350 (against 13,150 earlier) i.e. 18.5x P/E (1x PEG) on FY21-22E average EPS of Rs 723 with corresponding Sensex target at 43,650," ICICI Direct said.
Prabhudas Lilladher also revised its 12-month Nifty target to 13,461 (against 13,306 earlier at 18.6xSept21 EPS), saying the Nifty gains would be a function of economic revival and fallout of coronavirus.
The brokerage cut its FY21 and FY22 Nifty EPS growth estimates and now expects at 24.7 percent in FY21 and 16.9 percent in FY22 (led by banks and auto).
"Formalisation of our economy ultimately concentrates share of profits towards larger companies in various sectors and the two big reforms mentioned above only accelerates that process," LKP Research said.
Here are 10 investment ideas collated from various brokerage houses that can give 12-75 percent return in one year period:
Brokerage: LKP Research
ICICI Bank: Buy | Target: Rs 630 | Return: 15 percent
Balance-sheet of the bank has now strengthened remarkably over the years with lower concentration of large borrowers, rise in granular retail loans and increase in lending to better rated corporates. With strong balance-sheet, the bank is now well-placed to participate in multi-year strong credit growth.
We value the bank at Rs 630 with buy rating, assigning multiple of 2.4x FY22e ABV of the bank and valuing the subsidiaries at Rs 130 post 20 percent holding company discount. We expect re-rating of the bank to continue in coming quarters as well.
State Bank of India: Buy | Target: Rs 404 | Return: 23 percent
The bank would be making record profitability beginning current fiscal (Rs 14,600 crore) despite assuming higher slippage/credit cost guidance than management for FY20. SBI subsidiaries gaining size and scale, sizeable value unlocking can come from subsidiaries in future. Currently, its subsidiaries contribute nearly 32 percent to the SOTP target price of Rs 404.
Since, the bank would be making large profits, there is no immediate need to raise fresh capital, ruling out near term equity dilution risk as well. Given sharp improvement in return ratios, valuations looks very reasonable.
Maruti Suzuki: Buy | Target: Rs 8,060 | Return: 19 percent
Maruti is a proxy to rural recovery (38 percent of Maruti sales), driven by the anticipated strong Rabi output. Green shoots are seen with month-on-month growth in retail as well as wholesale volumes and YTD growth in positive territory now.
Early transition to BS VI has enabled Maruti to hold on to their overall market share at 50 percent levels. Recent price hikes of Rs 5,000-7,000 taken post reduction in BS IV inventory will support margins, while multi-quarter low network inventory of 52,000 units eases the pressure on the cost side.
Management guides for 5 percent industry growth in FY21. We expect 8/10 percent growth in volumes for FY21/22.
L&T Finance Holdings: Buy | Target: Rs 148 | Return: 20 percent
Unlike other NBFCs, L&T Finance is building strong retail oriented profitable assets. Key focus area of the management over the past few years has been retailisation of the balance-sheet.
NBFC has return on equity (ROE) of around 30 percent in rural finance, around 25 percent in housing loans and 15.5 percent in infrastructure financing. We value the NBFC at Rs 148, discounting its FY22e ABV by 1.7x, on the back of superior return ratios of 18/2.1 percent in FY22e.
Sun TV Network: Buy | Target: Rs 602 | Return: 23 percent
Advertising revenues are expected to recover in FY21, led by economic recovery. Sustained market share gains in all its geographies shall drive advertising revenues. It has been growing in all other geographies as well.
Margins are expected to move up on higher contribution from subscription business and operating leverage. Strong cash rich balance sheet, positive free cash flows, zero debt, superior high margins, robust return ratios, good dividend payout and attractive valuations make a very attractive case.
Garden Reach Shipbuilders and Engineers: Buy | Target: Rs 318 | Return: 75 percent
Garden Reach is a leading defense PSU supplying a wide range of warships to the Indian Navy and Indian Coast Guard Services. It is a first company to supply 100 warships to its clients since inception.
Mammoth order book of Rs 27,500 crore is key driver of growth going forward. Clean balance sheet, robust cash flows and zero debt status make the case impressive. Attractive valuations at 6.2x FY22E earnings for a listed defense PSU with strong business prospects, makes GRSE a compelling bet among smallcaps.
Brokerage: IndiaNivesh
SBI Life Insurance: Buy | Target: Rs 1,200 | Return: 29 percent
We believe that SBI Life is well positioned to ride the life insurance penetration theme in India, given the deep reach of its parent SBI coupled with other bancassurance partners and strong agency network. This distribution positioning of SBILIFE along with a very productive non-bancassurance distribution channel and a diversified product mix strategy can drive robust growth and value of new business.
SBI Liferanks as largest private life insurance company in India on IRP basis and NBP basis and has maintained a consistent growth trajectory despite downturns in the industry. We initiate on SBI Life with a buy at a target price of Rs 1,200.
Brokerage: Sharekhan
Divis Labs: Buy | Target: Rs 2,430 | Return: 12 percent
Divis is well placed to capitalize on the opportunities in the API space. A strong run up in the API prices attributable to likely supply disruption from China due to outbreak of the Corona Virus is would substantially benefit API focused companies like Divis.
Backward integration, aggressive capex plan incurred in the past and outsourcing opportunities would add to the topline and PAT growth for Divis. Further The company does not have pending regulatory hurdles which is a key positive and offers visibility for growth going ahead.
Brokerage: SMC Global
Varun Beverages: Buy | Target: Rs 1,062 | Return: 30 percent
According to the management, recent acquisitions of rights of PepsiCo India would benefit and make able to successfully integrate and increase profitability of the company. Moreover, it is expected that realizations would increase driven by manufacturing of Tropicana juices and the recently launched dairy based beverages.
During CY19, it has delivered a topline growth of 40 percent, EBITDA growth of 44 percent, and PAT growth of 58 percent in 2019. The performance was primarily driven by robust volumes reported in both the Indian and International markets.
Aarti Drugs: Buy | Target: Rs 838 | Return: 24 percent
The company has expanded its operation worldwide and continues to expand further in European Continent along with positive synergy through tie ups. It is expected that it will help to show strong track record in the subsequent financial years.
Moreover, its anti-diabetic products are expected to generate good double digit growth in the revenue in coming years.
Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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