Better-than-expected Q3FY17 quarterly numbers post demonetization and no major negative surprise in the Union Budget 2017 have enthused the equity markets to reach near the 9000 levels. Despite recent events like DeMo, changes in US trade policies towards protectionism and shift in the RBI’s monetary policy stance from ‘accommodative’ to ‘neutral’, the markets have shown resilience and moved northward.
The current scenario suggests a consolidation phase at the current levels as no fresh positive triggers are seen in the market. “We believe the month of March will be eventful and volatile on the back of 5 state election results in the 2nd week with the FOMC policy meet round the corner in mid March. Q4FY17 quarterly numbers will be the key for the market direction on stock-specific basis as the PSU banking segment may come under pressure. However, investors should be cautious in this scenario and enter into fundamentally-sound companies in a staggered manner,” says Siddharth Sedani, Vice President-Equity Advisory, Anand Rathi.
Anand Rathi recommends investors to take a look at the following investment ideas in the financials, consumption, agri, pharma and infra space with a medium to long-term view.
CMP (22 Feb 2017): 179
Target Price: 265
Rationale: Equitas is strongly positioned to grow on the back of its balanced portfolio. However, the market segment which the upcoming bank intends to cater to has vast untapped business potential and exploiting it effectively will drive the company’s growth for multiple years. Equitas is expected to attract meaningful valuation premium due to sustainability of high growth in its diversified business and lower liquidity risk as it converts into a bank.
You may also watch:
2. PI Industries
CMP (22 Feb 2017): 854
Target Price: 1085
Rationale: PI Industries has commercialized three products in 9M FY17. It plans to introduce three new-generation products next year. It intends to incur capex of ~Rs 2 bn each year for the next two years. It expects modest growth in revenue considering the agro-chemical industry scenario globally.
CMP (22 Feb 2017): 425
Target Price: 450
Rationale: Escorts’ 23% ytd tractor volume growth, more than 25% ytd growth in its construction-equipment volume and hopes of a rural recovery offer assurance of strong earnings growth. The thrust on dealer expansion and operations in southern India would add to its growth prospects. Anand Rathi expects CAGRs in revenue, EBITDA and PAT over FY17-19 of 16%, 37% and 45%, respectively.
4. Ahluwalia Contracts
CMP (22 Feb 2017): 300
Target Price: 360
Rationale: Benefiting from its higher operating leverage and the shift in order mix toward government contracts, Ahluwalia posted good Q3 FY17 figures. It clocked an 11.9% yoy revenue growth with a 13.2% EBITDA margin. “Its healthy order backlog, continued focus on execution and a keen eye on cash flows would continue to aid its performance. We estimate 15% and 21% CAGRs in revenue and PAT over FY16-19. We like the company for its industry-leading ratios and low-geared balance sheet,” says Sedani.
You may also watch:
5. Yes Bank
CMP (22 Feb 2017): 1447
Target Price: 1699
Rationale: Strong traction is seen in Yes Bank’s loan book, equally driven by its corporate and commercial books. Higher Treasury income offsets the increase in opex to keep PPOP buoyant. Anand Rathi finds comfort in its steady asset quality and comfortable capital position.
CMP (22 Feb 2017): 3239
Target Price: 3750
Rationale: With 2% volume growth in domestic biscuits and a 13.3% EBITDA margin (12.9% estimated), Britannia’s Q3 FY17 results crossed our estimates. “Despite de-monetisation headwinds, its performance has been steady, led by its focus on market and sales efficiency and extending credit to channel partners. Product launches, expansion in domestic and international markets and consistent cost-saving measures (aiming at Rs 2.1 bn savings in FY18) should aid growth and profitability. Hence, we retain our Buy recommendation,” says Sedani.
CMP (22 Feb 2017): 514
Target Price: 717
Rationale: Syngene enjoys multiyear, multi disciplinary partnership with some of the most respected research-focused companies. Syngene has set an investment target of US$ 200mn over FY16 to FY19 for (1) Brownfield expansion in its small molecule manufacturing facility, (2) setting up a new biologic manufacturing facility, (3) expanding its research laboratory in Bengaluru and for a greenfield manufacturing unit in the Mangalore SEZ that would be ready in three years.
CMP (22 Feb 2017): 317
Target Price: 382
Rationale: Going ahead the company aims to focus on retaining the current domestic market leadership and enhancing its market share in the fragrance and flavor industry in India and emerging markets, introduce new products, strengthen innovation platform to enhance its product portfolio and expand presence in the branded small pack portfolio.
9. Kirloskar Brothers
CMP (22 Feb 2017): 235
Target Price: 357
Rationale: Given Kirloskar Brothers’ focus on improving its projects business, provisioning is almost complete and “we see no major impact on profit in the next three years. Hence, we expect better operating cash-flows. We believe that the improving rural economy and the company’s focus on greater profitability would lead to a re-rating due to the greater assurance of profitability,” says Sedani.
You may also watch:
10. JK Tyres
CMP (22 Feb 2017): 119
Target Price: 170
Rationale: Demand for CV and farm tyres continues to be very strong due to heightened activity in mining and infra. The company’s recent foray into two-wheeler tyres has widened its range of products. It has considerably benefited from the impact of demonetisation on Chinese TBR imports.
(Disclaimer: These stock recommendations have been made by Anand Rathi. Although due care has been taken while making these recommendations, investors are advised to consult their financial advisors before investing in any stock based on these recommendations)