As we head towards the general elections, most experts feel that volatility is likely to inch higher, and investors should stay with quality stocks. The December quarter results were largely in line with estimates, but Nifty PAT downgrades continued to outdo upgrades and most brokerage firms have cut their earnings estimates for FY20.
“Against earnings contraction of 4.8 percent in FY18, FY19 Nifty EPS is now expected to increase 9.9 percent and 18.5 percent over the next two years. We have seen a cut of 2.8 percent and 3.5 percent in EPS to Rs 487.9 and Rs 578.1 in FY19 and FY20 (Rs 502 and Rs 599 earlier),” Prabhudas Lilladher said in a report.
Our Nifty estimates are 2.4 percent and 8.6 percent lower than consensus, said the report. The Nifty is currently trading at 19.3x 1 year forward earnings that show 9.6 percent premium to long-term average of 17.6.
The entire 2018 has been disappointing for our markets and it continues so far for the current calendar year as well. There is no doubt that the market looks a bit depressing, but investors should not lose heart and remain stock-specific which have their own growth stories.
“The pain is likely to remain for a while but it may not be as brutal as it has been. In fact, there are few pockets like auto and metal that are showing some early signs of revival,” Sameet Chavan, Chief Analyst - Technical & Derivatives at Angel Broking told Moneycontrol.
“Most of the retail participants try to catch stocks that are trading in two digits, which according to them are “cheap” and “potential” candidates for becoming multibaggers. First of all, it’s very important to remove this notion,” he said.
Here are six stocks where brokerages initiated coverage for the first time in February, and which can deliver 14-40 percent return in the next 1 year:
Solar Industries: Buy| LTP: Rs 938| Target: Rs 1,140| Upside: 21 percent
JMFinancial initiated coverage on Solar Industries with a buy rating and a target price of Rs 1,140. The brokerage firm has valued the company at 25xFY21E.
Solar Industries is a market leader with credible track record along & aggressive investment of Rs 900 crore over a period of next three years behind increasing its domestic explosive capacity by 1.65x (Rs 375 cr), overseas (Rs 300 cr) and defense (Rs 225 cr) provide comfort for strong visibility of future growth.
ICICI Prudential: Buy| LTP: Rs 314.25| Target: Rs 400| Upside: 28 percent
UBS initiated a buy rating on ICICI Prudential Life Insurance Company with a target price of Rs 400. ICICI Pru Life has a strong distribution network, with parent ICICI Bank exclusively distributing its products as well as a mix of business from individual agents and direct sales.
UBS expect mid-teen annual premium equivalent (APE) growth in the next three years and margins to improve further towards 18 percent, as the share of higher-margin protection business increases.
SBI Life Insurance Company: Buy| LTP: Rs 558| Target: Rs 740| Upside: 32 percent
UBS initiated coverage on SBI Life Insurance Company with a buy rating and a target price of Rs 740. SBI Life has been gaining market share in new business premiums, led by strong growth in the protection segment and in single premiums.
UBS expects SBI Life to continue to deliver robust growth (we estimate 15 percent APE growth on average in the next three years) and profitability improvement and to leverage the wide distribution network of parent State Bank of India.
Coromandel International: Buy| LTP: Rs 441| Target: Rs 600| Upside: 36 percent
Nirmal Bang Institutional Equities initiated coverage on Coromandel International with a buy rating and a target price of Rs 600. The brokerage firm is of the view that the company is in a leadership position and a prudent management team make CRIN a long-term structural story as the government is making a lot of efforts to improve farm economics.
Coromandel International (CRIN) is the largest privately-owned phosphatic fertiliser company in India. On all-India basis, it has a 16 percent market share whereas in its home markets of Andhra Pradesh, Telangana, and other adjacent states it holds nearly 65 percent share.
The fertiliser sector is not loved by many investors because of high government intervention (a fair reason considering the fate of many fertiliser companies in the past).
However, the brokerage firm pointed out that Coromandel has strategically kept itself safe from the ‘urea trap’, focusing on relatively low volume phosphatic fertilisers and made a fortune.
Aarti Industries: Buy| LTP: Rs 1,407| Target: Rs 1,599| Upside: 14 percent
Axis Securities initiated coverage on Aarti Industries with a buy rating and a target price of Rs 1599. The company was incorporated in 1984 and is a leading Indian manufacturer of Chemical and Pharmaceutical intermediates with a global footprint.
It operates primarily in three segments viz. Specialty Chemicals (78 percent of sales), Pharmaceuticals (15 percent of sales) and Home and Personal Care (7 percent of sales). The brokerage firm expects revenues to increase at 23 percent CAGR over FY18-21E while earnings are likely to grow at 27 percent CAGR to be driven by:
a) Growth in the specialty chemical (SC) sector, both globally and domestically, to aid demand for AIL’s products, b) Growth in the cash cow SC business from increasing utilisation and expanding capacities, as well as c) higher utilisation in the recently started Toluene derivative business (very few domestic manufacturers) as the demand for these products, mostly fulfilled by imports, remains high.
Apex Frozen Food: Buy| LTP: Rs 299.35| Target: Rs 434| Upside: 45 percent
Geojit Financial Services initiated coverage on Apex Frozen with a buy rating and a target price of Rs 434. Apex Frozen Foods Ltd (Apex) is an integrated producer and exporter of processed shrimps in Andhra Pradesh. The company has a processing capacity of 15,240MT including the leased capacity of 6,000MT.
Apex has a strong track record of growing above the industry average. Apex's revenue has grown at a robust 31 percent CAGR while the industry grew at 12 percent. Shrimp realisation witnessed a declining trend since Q3FY18 due to extended winter in the US coupled with strong supply that has now stabilised in Q2FY19.
Due to unusual high growth witnessed in FY18, PAT is expected to de-grow in FY19E, but excluding FY18, earnings growth is strong at 44 percent CAGR.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their 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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