Article

5 Large-Cap Stocks to BUY

31 Mar 2020 Nikita Bhoota

The Indian equity market is down 22.7% Nifty 50 and 22.1% Sensex from February 28, 2020 to March 27, 2020 mainly due to Covid 19 impact. The Covid 19 disease is widely spreading and has reached 1,070 mark in India as per the recent media reports. However, the Government has announced Rs.1.7lakh cr relief package to support the stressed pockets in the economy. Additionally, the crude oil war and issues in the banking sector have created havoc in Indian equity markets.

Investors are liquidating their existing portfolio at loss in the fear that the increase of covid cases will drag the market further. However, this correction in the market should be considered as an opportunity to accumulate large-cap stocks as they are available at attractive valuations. Large- cap stocks can be considered for investing due to their strong balance sheet, consistent financial performance and solid management. Also, large cap stocks do not fall as much as midcap and small-cap stocks at the time of crisis in the economy. Nifty 50 has fallen 22.7% when compared to Nifty midcap 50 and Nifty small-cap 50 which is down 29% and: 36% from February 28, 2020 to March 27, 2020.

Thus, based on financial performance, management, business outlook and historical trend, 5 paisa have picked following 5 large-cap stocks to earn healthy returns in the long run.

SBI Life Insurance (SBI Life)

CMP: Rs 606
Target Price: Rs1100 (1-year)
Upside: 81.6%

SBI Life is India’s largest private life insurer, with an overall market share of 12.2% on a retail APE basis. The company has a product mix of participating, non-participating and linked policies, with the mix skewed towards linked products. Unlike peers, for which growth is largely driven by one or two product segments, SBI Life has delivered industry leading growth across protection, non-par annuity and guaranteed return products as well as ULIPs, defying the weak sentiment in the capital markets. We believe that it could continue to surprise the street positively via resilient growth in uncertain times driven by a strong distribution franchise and mass customer base. We expect 17.3%/25% EV/VNB CAGR over FY19-21E. The stock trades at 2x FY21E P/EV.

Year

New Premuim Income (Rs Cr)

VNB (Rs Cr)

VNB margin (%)

PAT (Rs Cr)

EV per share

P/EV (x)

FY19E

32,890

1,720

17.7%

1,326

224

2.7

FY20E

43,076

2,169

19.0%

1,659

262

2.3

FY21E

52,550

2,695

20.0%

2,102

308

2.0

Source: 5paisa Research

Larsen and Toubro (L&T)

CMP: Rs 837
Target Price: Rs1240 (1-year)
Upside: 48%

We are positive on the stock on account of robust order book of 306,280cr (2.9x TTM sales) Q3FY20 provides healthy revenue visibility for the next 2 years. Although in near term, we expect L&T to face multiple headwinds that would harm the execution ability of the company. Besides, the recent oil price crash could impact execution of projects in the Middle East, weak macros in the domestic market could slowdown projects, mainly state government, and lastly, the increase in Covid-19 cases could temporarily shut down construction sites. However, its diversified reach enables it to manage risk better. We expect revenue, EBITDA and PAT CAGR of 7.1%, 5.8% and 5.1% respectively over FY19-21E. Recent correction in the stock is an opportunity to accumulate the stock at attractive valuations. The stock currently trades at 11.4x FY21EPS.                

Year

Net Sales (Rs Cr)

OPM (%)

Net Profit (Rs Cr)

EPS (Rs)

PE (x)

FY19

141,010

12.1

9,300

66.3

12.6

FY20E

149,640

11.7

10,210

72.8

11.5

FY21E

161,840

11.8

10,270

73.2

11.4

Source: 5paisa Research

Bharti Airtel

CMP: Rs448
Target Price: Rs595 (1-year)
Upside: 32.8%

We are positive on the stocks as the telecom player is well placed to benefit from the likely tariff up-cycle in the industry, in the next 2-3 years. TRAI’s recommendations on floor pricing may result in price hikes. Bharti is confident that its AGR dues are Rs130bn, based on self-assessment. A reconciliation exercise with DoT could result in a significant reduction in Bharti’s dues compared to the Rs370bn demanded by them. Bharti also managed to raise US$8bn in equity and debt in the past 12 months, which is timely, considering the potential impending credit squeeze in the markets. This should enable it to continue its high-capex trajectory and gain RMS. Additionally, COVID-19 impact on 4G handset supply chain that may result in higher dependence on used smart-phones (Favorable for older telcos) is beneficial for Bharti. Thus, we expect revenue CAGR of 11.8%over FY19-FY21E. We expect EBITDA CAGR of 31.5% over the same period. The stock is trading at EV/EBITDA of 9.4x FY21E

Year

Net Sales (Rs Cr)

OPM (%)

PAT(Rs Cr)

EPS(Rs)

EV/EBITDA

FY19

80,780

31.7

410

0.8

12.9

FY20E

86,848

41.7

(27,200)

-49.9

10.9

FY21E

100,912

43.9

2,100

3.8

9.4

Source: 5paisa Research

ICICI Lombard (ILOM)

CMP: Rs 1,023
Target Price: Rs 1,400 (1-year)
Upside: 36.9%

ICICI Lombard (ILOM) has corrected sharply from its highs, due to broader market sell-off driven by the COVID-19 pandemic. We see a comparatively lower risk to ILOM’s earnings, as it remains relatively insulated from the economic impact of COVID-19. We are positive on the stock as ILOM net beneficiary in the dynamic motor segment. The Structural changes in Motor TP regulations continue to give market share gains to ILOM, especially in OD, due to its strong OEM-dealer relationships. The recent Motor Vehicles Act should result in improved TP loss ratios, but in lower annual price hikes and investment float. Additionally, With GIC Re raising reinsurance rates in various sub-segments, effective Jan-2020, following up on the increase in Apr-2019, we expect Fire to be a key growth driver for ILOM. Health remains a structurally-high growth area, potentially more so after the pandemic, leading to marginal 3.6% GDPI CAGR for ILOM over FY19-21E. The stock trades at 29.5x FY21E EPS.

Year

GDPI (Rs cr)

PAT(Rs Cr)

EPS(Rs)

PE (x)

FY19

14,488

1,049

23.1

44.3

FY20E

13,948

1,213

26.7

38.3

FY21E

15,546

1,572

34.6

29.5

Source: 5paisa Research

Torrent Pharma

CMP: Rs 1,856
Target Price: Rs 2,200 (1-year)
Upside: 18.5%

The company is expected to outperform market growth in India by 150-200bps pa, driven by new product launches and in-licensing opportunities. Torrent’s recent new launches (e.g. Vildagliptin, Ticagrelor, Remogliflozin) have seen good traction till now. Thus, we expect revenue CAGR of 6.4% over FY19-21E. Management believes that OAI status on the Dahej facility is not likely to escalate into a warning letter, on the basis of the discussions of Torrent management with the USFDA. Re-inspection of the Dahej plant is expected by mid-2020, and clearance expected in 1HFY21. Indrad facility will be offered for re-inspection by 3QFY21, with clearance expected in 2HFY21.  Torrent’s deleveraging plans are on track. In 1HFY20. For full-year FY20, Torrent expects to reduce its net debt by Rs8-9bn. We project EBITDA and PAT CAGR of 9.6% and 58.1% respectively over FY19-21E. The stock is trades at 28.8x FY21E EPS.

Year

Net Sales (Rs Cr)

OPM (%)

PAT(Rs Cr)

EPS(Rs)

PE(x)

FY19

7,610

26.1

436

25.8

71.9

FY20E

7,924

27.2

947

56.0

33.1

FY21E

8,609

27.7

1,090

64.5

28.8

Source: 5paisa Research

Similar Articles
  • Responses
  • Patidar Samaj

    - 2 hrs ago

    This article claims RJio was given a "Backdoor Entry" into the 4G Based Voice Routing. The peculiar aspect is without the Voice License, Rjio would have been a mere ISP. With the license, it is now a holistic communications service provider, with ability to exponentially scale the bouquet of products. The events indicate it was meticulously planned way before the auctions because the auctions were clear on the agenda: 4G for internet only.

Load More
Have Referral Code?

Recent Articles

Beginner's Corner

5 Large-Cap Stocks to BUY

31 Mar 2020 Nikita Bhoota

The Indian equity market is down 22.7% Nifty 50 and 22.1% Sensex from February 28, 2020 to March 27, 2020 mainly due to Covid 19 impact. The Covid 19 disease is widely spreading and has reached 1,070 mark in India as per the recent media reports. However, the Government has announced Rs.1.7lakh cr relief package to support the stressed pockets in the economy. Additionally, the crude oil war and issues in the banking sector have created havoc in Indian equity markets.

Investors are liquidating their existing portfolio at loss in the fear that the increase of covid cases will drag the market further. However, this correction in the market should be considered as an opportunity to accumulate large-cap stocks as they are available at attractive valuations. Large- cap stocks can be considered for investing due to their strong balance sheet, consistent financial performance and solid management. Also, large cap stocks do not fall as much as midcap and small-cap stocks at the time of crisis in the economy. Nifty 50 has fallen 22.7% when compared to Nifty midcap 50 and Nifty small-cap 50 which is down 29% and: 36% from February 28, 2020 to March 27, 2020.

Thus, based on financial performance, management, business outlook and historical trend, 5 paisa have picked following 5 large-cap stocks to earn healthy returns in the long run.

SBI Life Insurance (SBI Life)

CMP: Rs 606
Target Price: Rs1100 (1-year)
Upside: 81.6%

SBI Life is India’s largest private life insurer, with an overall market share of 12.2% on a retail APE basis. The company has a product mix of participating, non-participating and linked policies, with the mix skewed towards linked products. Unlike peers, for which growth is largely driven by one or two product segments, SBI Life has delivered industry leading growth across protection, non-par annuity and guaranteed return products as well as ULIPs, defying the weak sentiment in the capital markets. We believe that it could continue to surprise the street positively via resilient growth in uncertain times driven by a strong distribution franchise and mass customer base. We expect 17.3%/25% EV/VNB CAGR over FY19-21E. The stock trades at 2x FY21E P/EV.

Year

New Premuim Income (Rs Cr)

VNB (Rs Cr)

VNB margin (%)

PAT (Rs Cr)

EV per share

P/EV (x)

FY19E

32,890

1,720

17.7%

1,326

224

2.7

FY20E

43,076

2,169

19.0%

1,659

262

2.3

FY21E

52,550

2,695

20.0%

2,102

308

2.0

Source: 5paisa Research

Larsen and Toubro (L&T)

CMP: Rs 837
Target Price: Rs1240 (1-year)
Upside: 48%

We are positive on the stock on account of robust order book of 306,280cr (2.9x TTM sales) Q3FY20 provides healthy revenue visibility for the next 2 years. Although in near term, we expect L&T to face multiple headwinds that would harm the execution ability of the company. Besides, the recent oil price crash could impact execution of projects in the Middle East, weak macros in the domestic market could slowdown projects, mainly state government, and lastly, the increase in Covid-19 cases could temporarily shut down construction sites. However, its diversified reach enables it to manage risk better. We expect revenue, EBITDA and PAT CAGR of 7.1%, 5.8% and 5.1% respectively over FY19-21E. Recent correction in the stock is an opportunity to accumulate the stock at attractive valuations. The stock currently trades at 11.4x FY21EPS.                

Year

Net Sales (Rs Cr)

OPM (%)

Net Profit (Rs Cr)

EPS (Rs)

PE (x)

FY19

141,010

12.1

9,300

66.3

12.6

FY20E

149,640

11.7

10,210

72.8

11.5

FY21E

161,840

11.8

10,270

73.2

11.4

Source: 5paisa Research

Bharti Airtel

CMP: Rs448
Target Price: Rs595 (1-year)
Upside: 32.8%

We are positive on the stocks as the telecom player is well placed to benefit from the likely tariff up-cycle in the industry, in the next 2-3 years. TRAI’s recommendations on floor pricing may result in price hikes. Bharti is confident that its AGR dues are Rs130bn, based on self-assessment. A reconciliation exercise with DoT could result in a significant reduction in Bharti’s dues compared to the Rs370bn demanded by them. Bharti also managed to raise US$8bn in equity and debt in the past 12 months, which is timely, considering the potential impending credit squeeze in the markets. This should enable it to continue its high-capex trajectory and gain RMS. Additionally, COVID-19 impact on 4G handset supply chain that may result in higher dependence on used smart-phones (Favorable for older telcos) is beneficial for Bharti. Thus, we expect revenue CAGR of 11.8%over FY19-FY21E. We expect EBITDA CAGR of 31.5% over the same period. The stock is trading at EV/EBITDA of 9.4x FY21E

Year

Net Sales (Rs Cr)

OPM (%)

PAT(Rs Cr)

EPS(Rs)

EV/EBITDA

FY19

80,780

31.7

410

0.8

12.9

FY20E

86,848

41.7

(27,200)

-49.9

10.9

FY21E

100,912

43.9

2,100

3.8

9.4

Source: 5paisa Research

ICICI Lombard (ILOM)

CMP: Rs 1,023
Target Price: Rs 1,400 (1-year)
Upside: 36.9%

ICICI Lombard (ILOM) has corrected sharply from its highs, due to broader market sell-off driven by the COVID-19 pandemic. We see a comparatively lower risk to ILOM’s earnings, as it remains relatively insulated from the economic impact of COVID-19. We are positive on the stock as ILOM net beneficiary in the dynamic motor segment. The Structural changes in Motor TP regulations continue to give market share gains to ILOM, especially in OD, due to its strong OEM-dealer relationships. The recent Motor Vehicles Act should result in improved TP loss ratios, but in lower annual price hikes and investment float. Additionally, With GIC Re raising reinsurance rates in various sub-segments, effective Jan-2020, following up on the increase in Apr-2019, we expect Fire to be a key growth driver for ILOM. Health remains a structurally-high growth area, potentially more so after the pandemic, leading to marginal 3.6% GDPI CAGR for ILOM over FY19-21E. The stock trades at 29.5x FY21E EPS.

Year

GDPI (Rs cr)

PAT(Rs Cr)

EPS(Rs)

PE (x)

FY19

14,488

1,049

23.1

44.3

FY20E

13,948

1,213

26.7

38.3

FY21E

15,546

1,572

34.6

29.5

Source: 5paisa Research

Torrent Pharma

CMP: Rs 1,856
Target Price: Rs 2,200 (1-year)
Upside: 18.5%

The company is expected to outperform market growth in India by 150-200bps pa, driven by new product launches and in-licensing opportunities. Torrent’s recent new launches (e.g. Vildagliptin, Ticagrelor, Remogliflozin) have seen good traction till now. Thus, we expect revenue CAGR of 6.4% over FY19-21E. Management believes that OAI status on the Dahej facility is not likely to escalate into a warning letter, on the basis of the discussions of Torrent management with the USFDA. Re-inspection of the Dahej plant is expected by mid-2020, and clearance expected in 1HFY21. Indrad facility will be offered for re-inspection by 3QFY21, with clearance expected in 2HFY21.  Torrent’s deleveraging plans are on track. In 1HFY20. For full-year FY20, Torrent expects to reduce its net debt by Rs8-9bn. We project EBITDA and PAT CAGR of 9.6% and 58.1% respectively over FY19-21E. The stock is trades at 28.8x FY21E EPS.

Year

Net Sales (Rs Cr)

OPM (%)

PAT(Rs Cr)

EPS(Rs)

PE(x)

FY19

7,610

26.1

436

25.8

71.9

FY20E

7,924

27.2

947

56.0

33.1

FY21E

8,609

27.7

1,090

64.5

28.8

Source: 5paisa Research