Since the last week of May, the market has been in an upward trend amid hope that economic activity will revive even as number cases of COVID-19 continue to rise. The market also shrugged off the news around India-China border tensions.
In last more than a month, the benchmark indices have gained around 18 percent and 37 percent each from their March lows. In June, the government opened most business activities in all non-containment zones.
"The Nifty-50 is trading at peak valuations hence there is very less value left in the large cap space except for select BFSI stocks. Based on expert advice in the healthcare sector commercial launch of an effective vaccine seems far away. As and when we have an effective vaccine markets will respond positively at that time. As of now 11,000 seems to be the best case scenario for Nifty-50 based on earnings and valuations," Rusmik Oza, Executive Vice President, Head of fundamental Research at Kotak Securities told Moneycontrol.
The broader markets also traded in line with benchmark indices as the BSE Midcap index gained 35 percent and Smallcap index rose 40 percent.
Moneycontrol collated a list of stocks wherein brokerages initiated coverage with a buy rating and expect 10-50 percent return:
Birlasoft: Buy | Target: Rs 125 | Return: 50.2 percent
Emkay Global initiated coverage on Birlasoft with a buy rating and a target of Rs 125, based on 10x FY22E EPS.
"Valuations offer a significant relative margin of safety, given a possible scope of improvement, though the financial history is limited. Global growth challenges and noncommittal pressure on IT spending in FY21 remain the downside risks to our thesis," the brokerage said.
A large client base and greater impetus on cross-selling through a revamped leadership team should help drive improvement in growth, it feels.
Honeywell Automation: Buy | Target: Rs 36,310 | Return: 25.9 percent
"Honeywell Automation (HWA) has outperformed its peers & delivered stellar CAGR of 31/37 percent in EBITDA/Earnings over FY16-20, led by market share gain, rising exports & healthy margin expansion," said Yes Securities which believes company's outperformance will sustain based on ongoing product portfolio upgradation, focus on software industrial business model, faster adoption of automated solutions by domestic market post COVID-19 episode & relentless execution on cost control/productivity.
"Given the high entry barrier & access to parent's superior technology, HWA to align its margins with parent's long term target of 24 percent. Unlevered balance sheet offers a tailwind in the event of any major macro slowdown," said the brokerage which initiated coverage with buy rating and target of Rs 36,310.
Phoenix Mills: Buy | Target: Rs 750 | Return: 24.2 percent
JM Financial believes Phoenix is a well-run company that has stuck to its core skill-set of running malls and is scaling this up well.
The brokerage initiated coverage with a buy rating and March 2021 target of Rs 750, assuming a 9 percent exit cap rate. "Key risks include i) the potential delay in scale-up of malls post COVID-19 and ii) a delay in the commissioning of new malls and iii) threat of OTT platforms and e-commerce," it said.
While FY21 is likely to be a washout for Phoenix (rental waivers, retailer churn, loss of income from events/parking, pressure on rentals, etc.), at these levels, it seems adequately captured in the stock price, said JM Financial which expects a sharp recovery in FY22E based on normalised occupancy and contribution from newer properties.
Minda Industries: Buy | Target: Rs 345 | Return: 24.9 percent
"With focus towards premiumization of the existing products, adding more value to the existing components and systems, and next-gen products like controllers and sensors would help Minda Industries to continue its growth journey," said IDBI Capital which expects additional revenue from Harita seating, sensors and controller business and 2-wheeler alloy business would help to mitigate the decline in revenue from existing businesses.
The brokerage initiated coverage on MIL with a buy rating and a price target of Rs 345 based on 13x FY22E EV/EBITDA.
Laurus Labs: Buy | Target: Rs 652 | Return: 13.1 percent
Sunidhi Securities likes the company's vision, well-timed, and calibrated investment focus on niche therapy and strong execution track record, which differentiate it from peers.
The brokerage expects Laurus to post revenue and profit CAGR of 13 percent and 31 percent over FY20-22E. After providing a capex of Rs 600 crore, it expects free cash flow of Rs 470 crore over FY21-22E, which should result in a significant reduction in debts.
Its return on equity is likely to expand from 15.3 percent in FY20 to 19 percent in FY22, said the brokerage which initiated coverage on the stock with a buy rating and price target of Rs 652.
Century Textiles: Buy | Target: Rs 436 | Return: 34.4 percent
Century Textiles and Industries' business model has gone through complete transformation over last three years post change in guard (from BK Birla to KM Birla) with alignment of business interests with group companies led by demerger of cement business to UltraTech Cement and transfer of rights to manage the VFY business to Grasim Industries and exit from loss making denim and yarn business.
"This transformation has led to sharp de-leveraging of balance sheet and start of generation of free cash flow from remaining operating business segment’s (pulp & paper, textiles and lease rental). This provides comfort of sustainability of business operation in a current stressed market condition as well as fuel to scale-up of upcoming business (Birla Estate)," said B&K Securities which re-initiated coverage on the stock with a buy rating and target price of Rs 436.
Coromandel International: Buy | Target: Rs 875 | Return: 19.8 percent
Antique Stock Broking believes Coromandel International (CRIN) is likely to take big leap as (a) rising share of unique grade fertilizer to support continued market share (MS) gain (b) product innovation and capacity expansion to boost crop protection business and (c) multiple levers to surge EBITDA margins.
"Further, successful implementation of DBT2.0 is likely to play as an option value to drive re-rating in the sector. Coromandel is our preferred pick in the fertilizer space backed by (a) leadership position (b) consistent growth prospects (c) robust FCF generation and best in- Class return profile," said the brokerage which initiated coverage on CRIN with a buy rating and target price of Rs 875.
CCL Products: Buy | Target: Rs 340 | Return: 36.9 percent
Nirmal Bang re-initiated coverage on CCL Products (CCLP), which is India's largest manufacturer and exporter of instant coffee, as superior execution capabilities coupled with strong client relationships has enabled the company to deliver profitable growth over the years.
"CCLP's foray into retail in India through Continental brand will gain critical mass in the next few years. CCLP reported the highest ever 25 percent consolidated EBITDA margin in FY20," said the brokerage which believes that over the medium term, Vietnam capacity expansion, higher volume from Freeze Dried Plant (FD) and commissioning of Agglomeration & packing unit would help maintain the margin.
"Deleveraging of balance sheet would give an additional boost to the earnings. We expect around 90 percent of long term debt to be repaid in the next 3 years," it added.
Greenlam Industries: Buy | Target: Rs 1,059 | Return: 39.4 percent
Yes Securities initiated coverage on Greenlam with buy rating and a target price of Rs 1,059.
The brokerage remained extremely sanguine about the business prospects of company on the back of strong track record (revenue/EBITDA CAGR of around 15/17.5 percent over FY10-FY19); long growth runway (expect domestic laminate industry to grow at 8-10 percent over next decade); moat in the form of scale benefits (with 18 percent domestic market share, competing neck-to neck with Merino for the top spot in India and third largest globally); and exceptional operating metrics of core business of laminates.
Sobha: Buy | Target: Rs 270 | Return: 15.9 percent
Sobha has underperformed recently (down 60 percent over past 1 year) due to a) increasing leverage and b) slow scale-up in sales volumes.
JM Financial believes Sobha's operating performance has been weak on cash collections in the residential segment leading to debt rising, but expect things to improve post COVID-19 disruption. The brokerage expects growth recovery on a pipeline of launches, which is expected to earn Rs 7,474 crore of net cash flow leading to moderation in debt and higher sales volume.
"These factors make us feel that Sobha is currently in an attractive zone and we initiate coverage with a buy rating and March 2021 target of Rs 270. Key risks are a material slowdown in the launch pipeline," JM Financial said.
Oberoi Realty: Buy | Target: Rs 435 | Return: 13.6 percent
"Oberoi Realty, a premium mixed use Mumbai based developer, is on the cusp of creating a large annuity portfolio consisting of hotels (Ritz Carlton, Worli and another small hotel in Worli), offices (Goregaon and Worli) and malls (Worli and Borivali) having potential to generate over Rs 1,000 crore in revenue over the next 4-5 years," said JM Financial.
"On the residential front, it would be launching the Thane project by 1HFY21 which is expected to be the next big market for Oberoi Realty. Among the existing residential projects, Borivali and Goregaon have been showing steady sales while Worli and Mulund projects have been slow. Going forward, we expect sales to pick-up in residential segment backed by project completion / new launch and new annuity assets to start contributing. We initiate on Oberoi Realty with a buy call and March 2021 target of Rs 435," it added.
Prestige Estates Projects: Buy | Target: Rs 240 | Return: 11.6 percent
"Prestige Estates has been working towards creating a large annuity portfolio comprising hotels, retail and offices through organic and inorganic growth. It has also been entering new markets (Mumbai, National Capital Region (NCR), Ahmedabad and Hyderabad) opportunistically as it continues to find attractive projects. The residential business provides adequate revenue visibility for the coming 2-3 years with unrecognized revenues and steady collections. Going forward, the embedded trigger is the monetisation of the annuity assets through a combination of stake sale or a REIT listing," said JM Financial which initiated coverage on Prestige Estates with a March 2021 target of Rs 240.
IIFL Wealth Management: Buy | Target: Rs 1,310 | Return: 31.4 percent
ICICI Securities said IIFL Wealth & Asset Management's Q4FY20 earnings reflected focus on transition towards more sustainable recurring revenues (up 14 percent YoY / 2 percent QoQ) and strong momentum in IIFL One (up 10 percent QoQ).
"Transitioning year (FY20) points towards continued build-up of recurring revenue based business model enabling more predictable earnings. Cost controls, reduction in non-sponsor investments and anticipated lower MTM loss will help push operating RoEs to high teens. We expect AUMs to maintain 18-20 percent growth and earnings to grow at over 25 percent," said the brokerage which reinitiated with buy and a revised target price of Rs 1,310 (earlier target Rs 1,636).
Escorts: Buy | Target: Rs 1,072 | Return: 10.1 percent
"On the back of onset revival across Tractor industry, better traction from company’s Railway equipment Division, we Initiate BUY rating on the stock with a Target Price of INR 1,072/share valuing at FY22E PE of 18.5x," Canara Bank Securities.
Government spending on rural areas would be INR 1.45 trillion crore in FY2021 would act as catalyst for reviving tractor demand. Government of India has set a target to double farmer income by 2022, which would not possible without farm mechanization. India’s tractor industry may witness positive sales volume due to positive macro-economic factors.
Indian Energy Exchange: Buy | Target: Rs 220 | Return: 16 percent
Indian Energy Exchange (IEX) is the monopolistic leader in India's fast-growing spot power (exchanges) market. "Rapidly changing power industry dynamics and horizontal diversification will further fortify IEX's share by 200bps to 6.3 percent in the 1250Bus conventional power market over the next three years. With potential launch of its gas exchange, IEX's future looks even more exciting," said Edelweiss.
"All in all, we conservatively estimate IEX's volumes as well as EPS would expand at a 15 percent CAGR over FY20–23E. We are initiating the stock with a buy and DCF-based target of Rs 220. Any reduction in trading margins (currently 4 paisa) and higher competitive intensity are the key risks," the brokerage added.
Varun Beverages: Buy | Target: Rs 850 | Return: 20.3 percent
Emkay Global reinitiated coverage on Varun Beverages with a Buy rating and a target of Rs 850.
"The positive stance is driven by visible market-share-gain opportunities in a healthy growing industry, best-in-class operational efficiencies and improving RoIC profile. CY20E performance will be hit by COVID-19 but long-term growth confidence drives higher-than-consensus estimates. Industry prospects remain healthy with expectations of a around 9.5 percent CAGR in value terms over CY19-24. We expect VBL to grow above the industry levels," said the brokerage.
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