To sum up 2018 in one word, I would say ‘exciting’. There was a lot of volatility as benchmark indices touched fresh highs twice in a year and then retreated, but the year offered enough opportunities for long-term investors to buy at lower valuations.
The S&P BSE Sensex is up nearly 6 percent, so far in 2018, while Nifty50 is about 3 percent higher. However, the broader market underperformed frontliners massively.
The Nifty Midcap 100 index is down by about 16 percent while the Nifty Smallcap index is nearly 30 percent lower in the same period.
Well, the good thing is that most of the macro headwinds which Indian market faced in the second half of 2018 have now become tailwinds. Rise in crude oil prices has reversed, rupee is now appreciating against the USD, but the political risk remains as a key headwind for D-Street in 2019.
Most experts now feel that India Inc. is on track to register double-digit earnings growth in 2019.
“The market looks ripe for a major up move in 2019. The lower trajectory of crude price, low inflation regime, softening of sovereign yields, relatively stable currency after the mayhem in INR and partial recovery in domestic earnings (ex-PSUs) are healthy signals for the market,” Amar Ambani, President, and Head Of Research of YES Securities (India) Ltd told Moneycontrol.
Jyoti Roy, Deputy Vice President, Angel Broking told Moneycontrol that he expects Sensex to trade in a range of 40,000-45,000 by the end of 2019 depending upon the outcome of the general elections.
“A favourable outcome of the general elections would lead to multiple expansion which can push Sensex closer to euphoric levels of ~45,000 by the year-end. On the other hand, an unfavorable outcome of the general election could depress markets for a few months,” he added.
Here is a list of 19 stocks to buy that could give 10-80% return in the year 2019. The return is calculated from the closing price recorded on December 28: Analyst: Vivek Ranjan Misra- Head of Fundamental Research at Karvy Stock Broking ICICI Bank Ltd: Buy| LTP: Rs 361| Target: Price Rs 440| Return 21%
The performance of ICICI Bank continues to underlie the traction in the recovery and stability in the core operating matrix. The headline loan growth numbers showed improvement as the quarter saw lesser drag from the stress book.
Going forward, we continue to see levers for return on equity (ROE) improvement. We expect ROE of ~13 percent in FY2019-20E.
Also, the headline asset quality ratios GNPA improved to 8.54 percent, the net NPA to 3.65 percent and the coverage ratio improved to 59.5 percent compared to GNPA of 8.81 percent, net NPA of 4.19 percent and coverage of 54.8 percent recorded in Q1FY2018-19.
Ashok Leyland Ltd: Buy| LTP: Rs 102| Target: Rs 150| Return 47%
We expect Ashok Leyland to benefit as the Indian MHCV industry is expected to report 10-12 percent growth in volumes in FY19 on account of a pick-up in construction and infra-spending in the Country.
New product launches lined-up in the MHCV segment is expected to see better traction. Also, the investment of around Rs 4 billion over the next three years to introduce an entire range of LCV models (2.5 - 7 ton) will strengthen the product portfolio.
Ashok Leyland has improved its market share from 33.5 percent to 35 percent in the domestic MHCV industry during H1FY19. This is despite aggression from competitors which has led to an increase in discounts in the previous few quarters.
However, going forward, we believe, on account of strong demand buoyancy, the competitive intensity led by pricing is likely to decline which augurs well for Ashok Leyland. At PER of 15xFY20, we see favorable risk-reward and rate the stock as a buy for a target price of Rs. 150.
Sunteck Realty: Buy| LTP: Rs 347| Target: Rs 497| Return 43%
Sunteck Realty Ltd (SRL) is engaged in the business of developing premium residential and commercial properties predominantly in the Mumbai Metropolitan Region (the “MMR”).
The company derives a large part of its revenue from its ultra luxurious project at Bandra Kurla Complex (BKC) and mixed use development project at Oshiwara District Center (ODC).
These projects are capable of generating an operating cash flow of more than Rs. 30 bn over a period of the next 3-4 years.
The company has launched its affordable housing project on 100 acres land parcel at Naigaon, Mumbai and has already sold ~2000 units worth more than Rs. 600 cr (out of 2476 units) during the launch of the project in September 2018.
Menon Bearings: Buy| LTP: Rs 77.45|Target: Rs 120| Return 55%
Menon Bearings undertakes designing, testing, validation and manufacturing of bearings, bushes and thrust washers for a wide range of applications.
Recently, Menon has invested Rs. 40 crores for the enhancement of aluminum division to de-risk its product mix. Considering the order book position and traction, we expect a revenue CAGR of 16.5 percent during FY18-20E along with EBITDA margins stabilizing around 27 percent by FY20E.
The Net debt/ equity of 0.1x indicates its balance sheet strength which is likely to remain debt free. At CMP of Rs. 77, MBL is trading at 15.5x to FY20E EPS and on account of higher return ratios (>25%) & healthy profitability margins.
Relaxo Footwear: Buy| LTP: Rs 730| Target: Rs 911| Return 24%
Relaxo Footwears Ltd. continues to hold a dominant market share in the low priced branded space. The company has been one of the best performers in the footwear space in the last few years clocking revenue and PAT growth of 14 percent and 29 percent CAGR in the last 5 years.
On the back of increasing customer base and focus on higher value products, we expect equity return (RoE) of ~23 percent for FY19-21E.
Backed by strong fundamentals, best in class return ratios amongst peers, and good growth prospects, we value the stock at a 38x (premium to its last 5-year avg. valuation), with a target price of Rs.911.
Analyst: Amar Ambani, President, and Head Of Research of YES Securities (India) Ltd
KNR Construction: Buy| Target: Rs 260| LTP: Rs 212| Upside: 22%
We are upbeat on infra spending in the year 2019. KNR has an order book that’s 3x its current revenues. Track record of timely completion of projects, HAM or hybrid annuity model order wins and P/E of 10x FY20 earnings. The one-year target for the stock is placed at Rs260.
Aarti Industries: Buy| LTP: Rs 1,423| Target: Rs 1,750| Upside 22%
Tailwinds in the chemical sector will continue given issues in China. Capacity de-bottling and visibility of revenue makes Aarti, a specialty chemical company, our favourite. The stock is trading at ~23x FY20 P/E and the valuations are fairly attractive. One-year target price Rs1,750.
Britannia Industries: Buy| LTP: Rs 3,098| Target: Rs 3780| Upside 22%
Health volume growth, focus on premium product adoption by customers, expansion of capacities, increasing distribution reach and adding geographies overseas and moderate commodity price outlook will help Britannia grow 20 percent on a YoY basis. With valuation at 42x FY21E, our one-year target price is Rs3,780.
Asian Paints: Buy| LTP: Rs 1,365| Target: Rs 1,750| Return 28%
Continued dominance in the decorative segment, ongoing expansion to double capacity in a phased manner and traction in industrial and automotive coatings segments through joint ventures makes the company a safe and steady bluechip to be invested in.
We expect 19 percent CAGR in profits between FY18-22. The stock trades at P/E of 46x FY20 earnings. The one-year target price is placed at Rs1750.
Reliance Industries: Buy| LTP: Rs 1,125| Target: Rs 1,500| Return 33%
JIO’s industry beating performance in Telecom raises hope of similar performance in other digital ventures. We’re upbeat on improving fortunes of its retailing business and strong earnings growth in core businesses of refining and petchem on account of petcoke gasification and off-gas cracker. Trades at 15x FY20 earnings. One-year target price 1500.
Analyst: Ambareesh Baliga, independent market expert
UPL: Buy| LTP: Rs 757| Target: Rs 940| Return 24%
UPL is among the largest one-stop crop protection solution providers. UPL is well poised to benefit from the attractive prospects in LATAM. Europe is expected to emerge as a major growth driver over the medium term, especially post the Arysta LifeScience amalgamation.
Both UPL and Arysta complement each other well in terms of their crop portfolio and geographical presence. The combined entity, thus, would become the fifth largest agrochemicals player in the world. We have a price target of 940.
JK Lakshmi Cement Ltd: Buy| LTP: Rs 288| Target: Rs 480| Return 66%
JK Lakshmi Cement (JKL) has doubled its capacity from 5.3MTPA to 10.7 MTPA since FY14, and this is expected to go up to 11.3 MTPA by FY19.
Capacity utilisation of sub-70 percent gives JKL significant headroom to grow. Additionally, the company has 6MTPA of expansion potential across its existing plants. On the back of this, we expect volumes to record 8 percent CAGR over FY17-20E.
JKL’s cost efficiency parameters are comparable with the best in the industry. JKL has commissioned 7.5MW of waste heat recovery (WHR) and is in the process of commissioning 20MW through a captive power plant by FY19 at its facility in the East (25% of total capacity).
The management expects costs saving of Rs 180-200/t from these projects, translating into an impact of Rs 50-60/t on reported EBITDA/t. We expect a target price of 480.
BSE: Buy| LTP: Rs 588| Target: Rs 1080| Return 83%
The oldest stock exchange in Asia has strong traction in new business initiatives. The company witnessed a strong business (average daily turnover) growth of 90 percent and 1387 percent in its currency derivatives and India International Exchange (IFSC) Limited ‘India INX’ segments to Rs. 32,668 crore and $630 million, respectively, for H1FY2019.
The exchange also introduced the commodity derivative segment on October 1, 2018, and became the first universal exchange in India offering one-stop solutions for all financial needs.
The company is also setting up a new power exchange in association with PTC India and ICICI Bank. The company has been launching various product offerings by entering into domestic and international tie-ups for related product launches to enhance and keep its business in momentum despite stiff competition. However, management believes this as an investment that will pay off in the medium to long run.
Brokerage Firm: Motilal Oswal Financial Services Ltd (MOFSL) Titan Company Ltd: Buy| LTP: Rs 922| Target: Rs 1105| Return 20%
Wedding season demand is scaling up well for Titan. In our view, if consumers continue flocking to its stores in the wedding season, Jewellery sales growth of 25 percent for the full year is achievable.
SSSG is likely to contribute 75-80 percent of Jewellery sales growth, which is even higher than the impressive 60 percent that it was reporting earlier. This, in turn, would have extremely positive implications on Jewelry EBIT margin.
Sustaining growth in the Watches segment, aided by new product additions and brand-building activities. Even Prescription Eyewear business is supporting its growth momentum due to a broader assortment of products at affordable price points and aggressive marketing spend.
The revenue growth opportunity of 20 percent is immense and far superior to peers. Also, the margin trajectory appears to be on an uptrend, as revenue is being driven by SSSG. We expect 25 percent EPS CAGR over FY18-20.
Indian Hotels Ltd: Buy| LTP: Rs 148| Target: Rs 163| Return 10%
Indian Hotel Company is the second largest hotel chain operator in India, with presence across the pricing spectrum through its four brands – Taj, Vivanta, Seleqtions, and Ginger. It manages 17,145 rooms across India and international locations, ~85 percent of which are in the domestic market.
The Indian hospitality industry is set to enter into an upcycle, led by favourable demand-supply dynamics. Industry occupancy (67%) has already breached the optimum level, allowing players to exercise pricing power.
Given its presence in high-demand, high-occupancy micro markets, Indian Hotel is strategically well placed to capitalize on the growth opportunities.
Indian Hotel also has an edge in terms of operating leverage, given its high fixed-cost proportion and efforts to rationalize expenses. We expect it to record revenue/ EBITDA CAGR of 9%/ 25% over FY18-20.
Marico Ltd: Buy| LTP: Rs 378| Target: Rs 465| Return 23%
There has been an evident step-up in the pace of new launches over the past 18 months with a couple of notable successes. The recent pipeline and successes so far could enable a new era of growth for Marico if all goes according to plan.
The strong performance of Parachute volumes continues in recent quarters along with healthy growth prospects in the VAHO (Value added hair oil) segment
Marico is also among the pioneers on extensive use of technology in distribution and with augmentation of analytics is creating another sustainable moat for the future. We expect revenue/PAT CAGR of 15%/17% over FY18-20.
Oberoi Realty: Buy| LTP: Rs 453| Target: Rs 574| Return 26%
Oberoi has one of the strongest balance sheets among Real estate companies, with negligible net debt. As of FY18, the company had net debt to equity of 0.3x. With strong monetization visibility from its ongoing and upcoming projects, Oberoi is expected to generate healthy free cash flow over FY18-20.
We believe such financial strength offers the company with an opportunity for value-accretive land acquisitions to drive growth potential beyond the existing land bank.
Oberoi plans to multiply its annuity portfolio from 1.6msf to 4.2msf resulting in leasing income increasing by 4x over the next five years. We estimate revenue/EBITDA/PAT CAGR of 47%/45%/71% over FY18-20.
Aurobindo Pharma Ltd: Buy| LTP: Rs 723| Target: Rs 920| Return 27%
Aurobindo Pharma is one of the biggest integrated pharma companies in India with a strong presence in US, Europe and South Africa (exports form ~70% of revenue).
The company has guided for 2x industry growth rate in the EU market along with better profitability on account of the transfer of 97 products from EU to India.
We remain positive on Aurobindo on robust ANDA filings rate, strong pace of approvals, minimal regulatory hurdles and the company outperforming the industry in the EU market. We expect Aurobindo to record 24%/22%/18% CAGR for revenue/EBITDA/Adj. PAT over FY18-20E, with RoE/RoCE of 22%/16% in FY20E.
HUL offers the best earnings growth visibility in the large-cap Indian consumer space. Four key trends are helping HUL in elevating its earnings growth trajectory to ~20%: (1) rapidly improving adaptability to market requirements, (2) recognition and strong execution on
Hindustan Unilever: buy| LTP: Rs 1820| Target: Rs 2140| Return 18%
Naturals, (3) strong trend toward premiumization and (4) extensive plans to employ technology and create further entry barriers.
The acquisition of GSK Consumer healthcare business pushes HUL among the market leaders in the only key category where it did not have market leadership (Food and Refreshments).
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