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Networthy Stock Broking expects Indian equities to outperform peers in terms of returns. The brokerage is of the view that positive actions from the Reserve Bank of India in monetary policies will boost overall sentiment and liquidity in the corporate world.
It has shortlisted five stocks that investors can invest during special muhurat trading session on Diwali day.
1) Ambuja Cements:
Ambuja has the strongest balance sheet among its peers. At the end of CY11, it had a net cash of Rs 20 bn. As the operating cash flows of the company are likely to be much higher than its capex, the company is expected to generate free cash flow of Rs 33 billion over the next two years. Hence, the company is well placed to tap inorganic growth, given the potential scope for consolidation within the industry due to excess capacity.
"We have a positive view on the cement sector, driven by our belief that: 1) the current price discipline among producers will persist; 2) demand growth is improving; 3) FY14 will be driven by increased investment in infrastructure and government spending before the state and central elections; 4) Softening of interest rates would be a big positive for the sector, thereby positively impacting the credit off take from both housing and industrial segment," the report said.
The brokerage values the company using the EV/EBITDA multiple methodology.
"At the current price, stock is trading at rich 8.5x CY13E EV/ EBITDA and EV/ton of $194. We derive the EV for the company at 10x (18% premium to average multiple) CY13E EBITDA based on its cost leadership, robust earnings growth, sustainable returns and strong balance sheet," the report added.
Networth has a target price of Rs 250 on the stock.
2) DishmanBSE 2.31 % Pharmaceuticals & Chemicals
After undergoing a phase of structural slump in the CRAMS space and a temporary suspension of order from long-time partner Solvay PharmaBSE 0.24 % (Switzerland-based innovative player), Dishman since last three quarters has been enjoying improvement in financials in terms of growth and profitability.
The improvement is visible in other leading players as well. With US President getting re-elected, we see the up-cycle continue going forward. Dishman is expected to garner more contracts from regulated market players as manufacturing in developed countries continue to be uncompetitive from a global context.
"We believe, Dishman would be able to sustain the current margin scenario going forward. With focus on profitable business and improving asset utilization (after a capex freeze), the return ratios are set to improve further which will help deleverage the balance sheet (D/E-0.8x in FY12)," the report said.
"We estimate revenue and profit to grow at 17 per cent and 56 per cent CAGR over FY12-14E. The stock is currently trading at 6.4x its FY14e EPS of Rs 17," the report said.
The brokerage has a target price of Rs 135 on the stock.
3) Pratibha Industries
The company's current order book at Rs 61.5 billion (excludes L1 order of Rs 1,500) is 3.8 times FY12 revenues which imply high revenue visibility for next 30-36 months. Around 36 per cent of the orders are from water infra, 35 per cent from building and 29 per cent from urban infra. In 1HFY13, the company added orders worth Rs 14.9 billion which included repeat order from DMRC worth Rs 10.9 billion.
"Although large projects will keep its leverage high in the near term due to high capex, we do not expect much deterioration in its profitability owing to strong operating performance. However, PIL's intention to securitize its BOT project and disposing off its SAW Pipe division will help it to reduce its debt level.
We maintain our positive stance on PIL given its increasing expertise in water space & Tunnel/Metro projects, sound execution ability, strong operating performance and expected business flow from overseas," the report said.
The brokerage values the company's business by assigning P/E multiple to its consolidated business.
"The company is well poised to tap the growing opportunities from the urban and rural infra space supported by the government spending. At current price of Rs 50, stock is trading at 5.2x FY13E EPS and 4.4x FY14E EPS. We recommend 'BUY' and assign a P/E multiple of 6x (15-20% discount to industry average) to its FY14E EPS of Rs 11.4," the report added.
Networth has a target price of Rs 68 on the stock.
4) Union Bank of India
The management of Union Bank of India is quite confident of maintaining the quality of assets going forward with further improvement in the NIM. The bank has given guidance for advances growth of 17 per cent for FY13 which seems to be in line with the industry standard looking at the current growth pace.
"Considering the overall performance of the bank (growth visibility in deposit as well as advances, quality of assets and consistent NIM) we believe that the bank would be able to deliver better performance going ahead. Again with the expectation of declining interest rate scenario and further up gradation in the restructured account due to the ongoing power reforms is expected to benefit the bank both in terms of profitability and sustainability," the brokerage said.
"The stock is available at 0.8 x prices to book multiple of FY13e adjusted book value and we recommend "BUY" on the stock with a price target of Rs 280," it added.
5) Yes Bank
Yes Bank has outperformed the industry growth rate across the business segment in the last three years and the brokerage expects it to maintain the growth rate going forward.
The bank has registered an NII (Net Interest income) growth of 35.9 per cent YoY on the back of strong deposit and advances growth. YBL's deposit has posted a growth of 18.6 per cent YoY while, advances has registered a growth of 22.9 per cent YoY. The CASA ratio of the bank has shown a significant growth during the quarter and stood at 17.3 per cent which helped the bank to reduce the cost of funds.
"We expect the bank's advance and deposit base to grow at a CAGR of more than 22 per cent between FY13 and FY15 while earnings of the bank is expected to grow at a CAGR of more than 35% during the same period," the brokerage said.
"Considering continuous growth in CASA deposits (currently at 17.3 per cent), gradual increase in NIM (current level at 2.9 per cent), superior asset quality and healthy return ratios, we expect YBL to be able to deliver good sets of numbers in coming years," the report added.
The brokerage has a "BUY" rating on the stock with a price target of Rs 470.
Networthy Stock Broking expects Indian equities to outperform peers in terms of returns. The brokerage is of the view that positive actions from the Reserve Bank of India in monetary policies will boost overall sentiment and liquidity in the corporate world.
It has shortlisted five stocks that investors can invest during special muhurat trading session on Diwali day.
1) Ambuja Cements:
Ambuja has the strongest balance sheet among its peers. At the end of CY11, it had a net cash of Rs 20 bn. As the operating cash flows of the company are likely to be much higher than its capex, the company is expected to generate free cash flow of Rs 33 billion over the next two years. Hence, the company is well placed to tap inorganic growth, given the potential scope for consolidation within the industry due to excess capacity.
"We have a positive view on the cement sector, driven by our belief that: 1) the current price discipline among producers will persist; 2) demand growth is improving; 3) FY14 will be driven by increased investment in infrastructure and government spending before the state and central elections; 4) Softening of interest rates would be a big positive for the sector, thereby positively impacting the credit off take from both housing and industrial segment," the report said.
The brokerage values the company using the EV/EBITDA multiple methodology.
"At the current price, stock is trading at rich 8.5x CY13E EV/ EBITDA and EV/ton of $194. We derive the EV for the company at 10x (18% premium to average multiple) CY13E EBITDA based on its cost leadership, robust earnings growth, sustainable returns and strong balance sheet," the report added.
Networth has a target price of Rs 250 on the stock.
2) DishmanBSE 2.31 % Pharmaceuticals & Chemicals
After undergoing a phase of structural slump in the CRAMS space and a temporary suspension of order from long-time partner Solvay PharmaBSE 0.24 % (Switzerland-based innovative player), Dishman since last three quarters has been enjoying improvement in financials in terms of growth and profitability.
The improvement is visible in other leading players as well. With US President getting re-elected, we see the up-cycle continue going forward. Dishman is expected to garner more contracts from regulated market players as manufacturing in developed countries continue to be uncompetitive from a global context.
"We believe, Dishman would be able to sustain the current margin scenario going forward. With focus on profitable business and improving asset utilization (after a capex freeze), the return ratios are set to improve further which will help deleverage the balance sheet (D/E-0.8x in FY12)," the report said.
"We estimate revenue and profit to grow at 17 per cent and 56 per cent CAGR over FY12-14E. The stock is currently trading at 6.4x its FY14e EPS of Rs 17," the report said.
The brokerage has a target price of Rs 135 on the stock.
3) Pratibha Industries
The company's current order book at Rs 61.5 billion (excludes L1 order of Rs 1,500) is 3.8 times FY12 revenues which imply high revenue visibility for next 30-36 months. Around 36 per cent of the orders are from water infra, 35 per cent from building and 29 per cent from urban infra. In 1HFY13, the company added orders worth Rs 14.9 billion which included repeat order from DMRC worth Rs 10.9 billion.
"Although large projects will keep its leverage high in the near term due to high capex, we do not expect much deterioration in its profitability owing to strong operating performance. However, PIL's intention to securitize its BOT project and disposing off its SAW Pipe division will help it to reduce its debt level.
We maintain our positive stance on PIL given its increasing expertise in water space & Tunnel/Metro projects, sound execution ability, strong operating performance and expected business flow from overseas," the report said.
The brokerage values the company's business by assigning P/E multiple to its consolidated business.
"The company is well poised to tap the growing opportunities from the urban and rural infra space supported by the government spending. At current price of Rs 50, stock is trading at 5.2x FY13E EPS and 4.4x FY14E EPS. We recommend 'BUY' and assign a P/E multiple of 6x (15-20% discount to industry average) to its FY14E EPS of Rs 11.4," the report added.
Networth has a target price of Rs 68 on the stock.
4) Union Bank of India
The management of Union Bank of India is quite confident of maintaining the quality of assets going forward with further improvement in the NIM. The bank has given guidance for advances growth of 17 per cent for FY13 which seems to be in line with the industry standard looking at the current growth pace.
"Considering the overall performance of the bank (growth visibility in deposit as well as advances, quality of assets and consistent NIM) we believe that the bank would be able to deliver better performance going ahead. Again with the expectation of declining interest rate scenario and further up gradation in the restructured account due to the ongoing power reforms is expected to benefit the bank both in terms of profitability and sustainability," the brokerage said.
"The stock is available at 0.8 x prices to book multiple of FY13e adjusted book value and we recommend "BUY" on the stock with a price target of Rs 280," it added.
5) Yes Bank
Yes Bank has outperformed the industry growth rate across the business segment in the last three years and the brokerage expects it to maintain the growth rate going forward.
The bank has registered an NII (Net Interest income) growth of 35.9 per cent YoY on the back of strong deposit and advances growth. YBL's deposit has posted a growth of 18.6 per cent YoY while, advances has registered a growth of 22.9 per cent YoY. The CASA ratio of the bank has shown a significant growth during the quarter and stood at 17.3 per cent which helped the bank to reduce the cost of funds.
"We expect the bank's advance and deposit base to grow at a CAGR of more than 22 per cent between FY13 and FY15 while earnings of the bank is expected to grow at a CAGR of more than 35% during the same period," the brokerage said.
"Considering continuous growth in CASA deposits (currently at 17.3 per cent), gradual increase in NIM (current level at 2.9 per cent), superior asset quality and healthy return ratios, we expect YBL to be able to deliver good sets of numbers in coming years," the report added.
The brokerage has a "BUY" rating on the stock with a price target of Rs 470.
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