You can make a splash this Holi, with these stocks by your side


NEW DELHI: One leg of the domestic stock rally is the optimism surrounding strong macroeconomic numbers. The other is earnings revival. But in this fascinating story, the piece that does not fit well is valuations. Even Big Bull Rakesh Jhunjhunwala is upfront about it, saying current valuations are anything but reasonable.

The day of colours, Holi, is here. And reached out to a few brokerages to get a sense of ideas they feel strong about that can add colour to their investor portfolio by delivering up to 40 per cent returns by next Holi. This is what they came up with.
Brokerage: Angel Broking

Safari Industries
Target price: Rs 650 Upside potential: 25%
</span> Safari Industries is the third-largest branded player in the Indian luggage industry. The recent restructuring in the company has helped it post a 42 per cent CAGR in revenue and 46 per cent CAGR in profit over 2012-17. The company has now captured 14 per cent market share in a Rs 2,600 crore branded luggage market. Its margins have more than doubled to 9.1 per cent in 9FY18, from 4.1 per cent in FY14, driven by launch of new product categories and business. We expect it to maintain 9 per cent plus margins from FY18 onwards, led by regular price hikes, shift towards organised player space and favourable industry dynamics. The brokerage expects the company's revenue to grow by 23 per cent CAGR over FY2017-20E on the back of growth in its recently introduced new products. Safari currently trades at a P/E multiple of 40 times FY19E and 30 times its FY20E EPS, which looks attractive looking at its strong brand play story in the luggage industry.
Target price: Rs 510 Upside potential: 17%

HSIL Limited (HSIL) offers sanitaryware products, faucets and glass bottles. The company’s 46 per cent revenue comes from building products division, nearly 43 per cent from packaging products unit and the balance from other businesses.

This market is expected to grow at 10 per cent CAGR, going forward, on the back of increasing disposable income, urbanisation, evolving preferences and government initiatives (Swachh Bharat, Housing for All, Smart Cities, and the like).

HSIL expects to launch security caps and closures in Q1 FY19, which would be able to generate revenue of around Rs 130 crore on full operating basis (EBIT is around 20-25 per cent). Moreover, HSIL is entering the PVC pipe segment, which is likely to start commercial production in FY19 and will be able to generate revenue of Rs 400 crore on peak utilisation. The company has entered new segments like consumer, pipes and caps and closures, which will drive further growth. Angel Broking expects HSIL to report net revenue CAGR of 12 per cent to Rs 2,905 crore over FY2017-20E. On the bottom line front, it expects CAGR of 15 per cent to Rs 154 crore over FY17-20E because of improvement in operating margins.
Elantas Beck India
TP: Rs 2,500 Upside potential: 16%
Elantas Beck India (Elantas) is the Indian market leader in liquid insulation segment used in electrical equipment like motors, transformers, generators and the like. Elantas enjoys market leadership in both primary and secondary insulation market with over 35 per cent market share. It is a debt-free company which generates robust free cash flows. Its robust business model also helps in limiting its working capital cycle to nearly 65-70 days and its capex requirements. Elantas is likely to post subdued CY17, mainly marred by GST woes and poor offtake from the customer side. The demand would pick up from CY18 onwards, which will boost the earnings CAGR to 17 per cent over CY18-20. Current valuations at 22.4 times CY19 EPS looks attractive, considering its growth potential and high return ratios.

Brokerage: HDFC Securities

CMP: Rs 1,160.75 I Target: Rs 1,325
Despite a turbulent internal phase as well as a challenging business environment, Infosys has maintained its market share against peers. The appointment of a new CEO and revamped board has brought fresh strategy, higher investments in platforms and a better execution engine, leading to higher total contract value (TCV). The fast reviving US banking and financial services (BFS) segment — led by Europe earlier — and scalability and build-up of momentum in top 11-25 accounts would drive incremental growth in coming years. The stock is trading at a discount of close to 20 per cent to TCS compared with 5/10-year average of 15 per cent and 9 per cent, respectively, which is likely to come down.

Petronet LNG
CMP: Rs 240.80 I Target: Rs 304
India's LNG demand is expected to double to 45 million tonnes annually in the next four years on the back of increasing demand from power and fertiliser sectors. Rising demand, coupled with completion of the Kochi-Mangalore pipeline, and expansion of the Dahej terminal is likely to boost volumes.
The company in 2017 renegotiated the Exxon Gorgon contract that may cut LNG import price by $1, mitigating potential offtake risks even if direct benefits are limited.

NRB Bearing
CMP: Rs 161.8 I Target: Rs 204
NRB is witnessing strong growth across OEM segments which account for nearly 65 per cent of its revenues. Export growth has also picked up, led by a recovery in the North-American and European truck /PV markets. The company is also looking to procure incremental revenue from the defence, marine and railway segments. With no major capex in coming years, NRB is likely to cut down its debt levels, resulting in improvement of return ratios by 300-400 basis points over FY17-20.
Brokerage: Centrum Broking
Capital First Upside potential: 37%
The brokerage has an outperformer rating on the stock due to the NBFC's diversified asset mix and low NPAs, coupled with healthy loan growth. The brokerage noted that the NBFC has maintained healthy business growth and lower NPAs in the last two quarters and there has been a consistent improvement in profitability and RoE, which stood at 14.8 per cent in the December quarter, up from 13.1 per cent in July-September and 11.5 per cent in April-June. Post-merger with IDFC Bank, the growth of the merged entity is expected to remain healthy. Considering the strong track record, focus on growing high-yielding retail business and improving asset quality, we believe the stock will gain better valuation.

We continue to remain positive on the stock and maintain Outperformer rating with a target price of Rs 919, valuing it at 2.5 times its FY20E ABV. (From the CENTRUM report).

(Companies mentioned in the article are not stock recommendations. Please consult your advisor before taking any decision)

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