Article

5 Stocks to BUY this Diwali

12 Nov 2020 Nikita Bhoota

From extreme pessimism in March 2020, the stock market recovery has been incredible. Benchmark index Nifty50 rallied ~68% in nearly 8 months to hit a closing high of 12,749 on November 11, 2020 from its closing low of 7,610 on March 23, 2020. Positive global cues like certainty in the US after elections, consistent FII inflow, improved earnings and improving economic data points month-after-month were real drivers for the record high.

Well, are you wondering which stocks to invest in or buy this Diwali considering that the market is at all-time high?  With just days to go for Samvat 2077, 5paisa has cherry-picked 5 Stocks to Buy on the auspicious occasion of Diwali based on the fundamentals, management outlook and future growth potential of the company to enhance their portfolio.

Infosys:

CMP: Rs1,123

Target: Rs1,400

Upside:24.7%

 

Infosys, with USD ~13bn revenues, is the second largest listed IT Services company in India with digital accounting for ~47% of its revenues in FY20. We believe that Infosys is well placed to gain wallet share within clients led by its cloud offerings, automation-led solutions and an institutionalized large deals team with focus on higher win rates. Underpinned by higher visibility, Infosys has guided for 2-3% cc YoY growth in FY21E, a year when most peers will likely witness revenue declines. With ~60% of revenue coming from lesser impacted verticals including Communications and Hi-Tech, we forecast +3.5%/+12% cc YoY revenue growth in FY21E/22E. Infosys had invested in building digital skills and increasing localization over the past two years. With the investment phase now behind, margins should start to improve. It is focused on strategic margin levers including pyramid optimization, improved onsite mix, lower subcontracting costs and automation. As a result, we expect margins to expand ~200bps over FY20-23E.

Year

Revenue (Rs Cr)

EBIDA (%)

EPS (Rs)

PE (x)

FY21E

99,760

27.2

44.8

25.1

FY22E

1,12,346

26.9

50.4

22.3

Source: 5paisa Research, *Price and valuations ratios as on November 11, 2020

Dr Reddy’s Laboratories (DRL)

CMP: Rs4,887

Target: Rs5,800

Upside:18.7%

Dr Reddy’s Laboratories (DRL) is India’s second-largest pharmaceutical company in terms of revenue with US Formulations accounting for 39% of the revenue in FY20. DRL has recently had a string of good new launches in the US market (generic versions of Ciprodex, Faslodex, Precedex, Kuvan), and the momentum is likely to sustain, with anticipated launches for generic Nuvaring & Vascepa in FY22E and generic Revlimid in FY23E. Additionally, DRL can drive improved growth in the acquired Wockhardt India portfolio through investments in branding and expanding doctor-reach, while the company’s API business would benefit from structural tailwinds owing to de-risking of China-linked manufacturing supply chains. We expect DRL’s base business EPS (excluding gRevlimid) to register 21% CAGR over FY20-23E, led by 13% revenue CAGR and 350bps margin expansion (new US launches, cost control) over the next 3 years.

Year

Revenue (Rs Cr)

EBIDA (%)

EPS (Rs)

PE (x)

FY21E

19,380

24.3

165.6

29.5

FY22E

21,650

24.4

184.8

26.4

Source: 5paisa Research, *Price and valuations ratios as on November 11, 2020

Persistent Systems:

CMP: Rs1,113

Target: Rs1,470

Upside:32.1%

Persistent Systems, a mid-size IT services company, would benefit on account of large deal wins in the past few quarters, vendor consolidation and increased focus on client mining.  Led by a restructured sales-force and driven senior management, we believe Persistent could witness double-digit revenue CAGR over the next three years. The BFSI vertical and its Salesforce practice are likely to be key revenue drivers for Persistent. We forecast EBIT margins to expand by 380bps over FY20-23E. While there could be pressure in the near term, due to large-deal transition costs and Covid-linked donation (~100bps), it will reverse in FY22E. Lower amortization related to the IBM deal signed in the past and strong execution coupled with revenue growth will also act as margin tailwinds. Persistent trades at 16x FY22E P/E, at a slight discount to its mid-cap peers despite a combination of revenue growth and margin expansion, which is likely to drive sector leading earnings CAGR of 24% over FY20-23E.

Year

Revenue (Rs Cr)

EBIDA (%)

EPS (Rs)

PE (x)

FY21E

4,114

15.4

55.7

20.0

FY22E

4,566

15.6

70.9

15.7

Source: 5paisa Research, *Price and valuations ratios as on November 11, 2020

JB Chemicals & Pharmaceuticals (JBCP):

CMP: Rs.960

Target: Rs.1,125

Upside:17.2%

 

JB Chemicals & Pharmaceuticals (JBCP) is a 40-year old pharma company with several well established brands in the domestic market and wide geographical presence in the both regulated and semi-regulated markets. JBCP has been outperforming the Indian pharma market and we expect this outperformance to sustain on account of new launches and strong growth in focused-products group (especially cardiac), which consist of cardiac brands (Cilacar and Nicardia) and acute brands (Rantac and Metrogyl). We believe that KKR would also look to accelerate growth in various business segments of JBCP by: (a) further expanding the company’s presence in the high-growth branded formulations markets, (b) entry into newer therapeutic areas in the domestic market and (c) potentially scaling-up JBCP’s highly profitable CMO business over the next 3-4 year

Year

Revenue (Rs Cr)

EBIDA (%)

EPS (Rs)

PE (x)

FY21E

2,005

24.6

45.0

21.3

FY22E

2,232

24.5

48.9

19.6

Source: 5paisa Research, *Price and valuations ratios as on November 11, 2020

Security & Intelligence Services (India) (SIS)

CMP: Rs.374

Target: Rs.560

Upside:49.7%

 

Security and Intelligence Services (SIS) is one of the leading providers of private security and facility management services in India. We believe that SIS can benefit from weakening of informal and marginal competitors in the current environment and expect SIS to be the least-impacted among business services companies. Moreover, the new set of labour reforms will enable SIS to gain market share in the fragmented industry.  Apart from India, SIS has strong positioning in developed markets like Australia (leadership position), New Zealand and Singapore. The growth momentum is quite strong in these regions, particularly in Australia, where ad hoc contracts are driving growth and are offsetting pricing pressure. Moreover, the overall security services business has high ROCE and generates strong cash flow, thus providing opportunities to invest in its incubation portfolios.

Year

Revenue (Rs Cr)

EBIDA (%)

EPS (Rs)

PE (x)

FY21E

8,835

5.7

14.4

26.0

FY22E

9,781

6.1

20.2

18.5

Source: 5paisa Research, *Price and valuations ratios as on November 11, 2020

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    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.

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5 Stocks to BUY this Diwali

12 Nov 2020 Nikita Bhoota

From extreme pessimism in March 2020, the stock market recovery has been incredible. Benchmark index Nifty50 rallied ~68% in nearly 8 months to hit a closing high of 12,749 on November 11, 2020 from its closing low of 7,610 on March 23, 2020. Positive global cues like certainty in the US after elections, consistent FII inflow, improved earnings and improving economic data points month-after-month were real drivers for the record high.

Well, are you wondering which stocks to invest in or buy this Diwali considering that the market is at all-time high?  With just days to go for Samvat 2077, 5paisa has cherry-picked 5 Stocks to Buy on the auspicious occasion of Diwali based on the fundamentals, management outlook and future growth potential of the company to enhance their portfolio.

Infosys:

CMP: Rs1,123

Target: Rs1,400

Upside:24.7%

 

Infosys, with USD ~13bn revenues, is the second largest listed IT Services company in India with digital accounting for ~47% of its revenues in FY20. We believe that Infosys is well placed to gain wallet share within clients led by its cloud offerings, automation-led solutions and an institutionalized large deals team with focus on higher win rates. Underpinned by higher visibility, Infosys has guided for 2-3% cc YoY growth in FY21E, a year when most peers will likely witness revenue declines. With ~60% of revenue coming from lesser impacted verticals including Communications and Hi-Tech, we forecast +3.5%/+12% cc YoY revenue growth in FY21E/22E. Infosys had invested in building digital skills and increasing localization over the past two years. With the investment phase now behind, margins should start to improve. It is focused on strategic margin levers including pyramid optimization, improved onsite mix, lower subcontracting costs and automation. As a result, we expect margins to expand ~200bps over FY20-23E.

Year

Revenue (Rs Cr)

EBIDA (%)

EPS (Rs)

PE (x)

FY21E

99,760

27.2

44.8

25.1

FY22E

1,12,346

26.9

50.4

22.3

Source: 5paisa Research, *Price and valuations ratios as on November 11, 2020

Dr Reddy’s Laboratories (DRL)

CMP: Rs4,887

Target: Rs5,800

Upside:18.7%

Dr Reddy’s Laboratories (DRL) is India’s second-largest pharmaceutical company in terms of revenue with US Formulations accounting for 39% of the revenue in FY20. DRL has recently had a string of good new launches in the US market (generic versions of Ciprodex, Faslodex, Precedex, Kuvan), and the momentum is likely to sustain, with anticipated launches for generic Nuvaring & Vascepa in FY22E and generic Revlimid in FY23E. Additionally, DRL can drive improved growth in the acquired Wockhardt India portfolio through investments in branding and expanding doctor-reach, while the company’s API business would benefit from structural tailwinds owing to de-risking of China-linked manufacturing supply chains. We expect DRL’s base business EPS (excluding gRevlimid) to register 21% CAGR over FY20-23E, led by 13% revenue CAGR and 350bps margin expansion (new US launches, cost control) over the next 3 years.

Year

Revenue (Rs Cr)

EBIDA (%)

EPS (Rs)

PE (x)

FY21E

19,380

24.3

165.6

29.5

FY22E

21,650

24.4

184.8

26.4

Source: 5paisa Research, *Price and valuations ratios as on November 11, 2020

Persistent Systems:

CMP: Rs1,113

Target: Rs1,470

Upside:32.1%

Persistent Systems, a mid-size IT services company, would benefit on account of large deal wins in the past few quarters, vendor consolidation and increased focus on client mining.  Led by a restructured sales-force and driven senior management, we believe Persistent could witness double-digit revenue CAGR over the next three years. The BFSI vertical and its Salesforce practice are likely to be key revenue drivers for Persistent. We forecast EBIT margins to expand by 380bps over FY20-23E. While there could be pressure in the near term, due to large-deal transition costs and Covid-linked donation (~100bps), it will reverse in FY22E. Lower amortization related to the IBM deal signed in the past and strong execution coupled with revenue growth will also act as margin tailwinds. Persistent trades at 16x FY22E P/E, at a slight discount to its mid-cap peers despite a combination of revenue growth and margin expansion, which is likely to drive sector leading earnings CAGR of 24% over FY20-23E.

Year

Revenue (Rs Cr)

EBIDA (%)

EPS (Rs)

PE (x)

FY21E

4,114

15.4

55.7

20.0

FY22E

4,566

15.6

70.9

15.7

Source: 5paisa Research, *Price and valuations ratios as on November 11, 2020

JB Chemicals & Pharmaceuticals (JBCP):

CMP: Rs.960

Target: Rs.1,125

Upside:17.2%

 

JB Chemicals & Pharmaceuticals (JBCP) is a 40-year old pharma company with several well established brands in the domestic market and wide geographical presence in the both regulated and semi-regulated markets. JBCP has been outperforming the Indian pharma market and we expect this outperformance to sustain on account of new launches and strong growth in focused-products group (especially cardiac), which consist of cardiac brands (Cilacar and Nicardia) and acute brands (Rantac and Metrogyl). We believe that KKR would also look to accelerate growth in various business segments of JBCP by: (a) further expanding the company’s presence in the high-growth branded formulations markets, (b) entry into newer therapeutic areas in the domestic market and (c) potentially scaling-up JBCP’s highly profitable CMO business over the next 3-4 year

Year

Revenue (Rs Cr)

EBIDA (%)

EPS (Rs)

PE (x)

FY21E

2,005

24.6

45.0

21.3

FY22E

2,232

24.5

48.9

19.6

Source: 5paisa Research, *Price and valuations ratios as on November 11, 2020

Security & Intelligence Services (India) (SIS)

CMP: Rs.374

Target: Rs.560

Upside:49.7%

 

Security and Intelligence Services (SIS) is one of the leading providers of private security and facility management services in India. We believe that SIS can benefit from weakening of informal and marginal competitors in the current environment and expect SIS to be the least-impacted among business services companies. Moreover, the new set of labour reforms will enable SIS to gain market share in the fragmented industry.  Apart from India, SIS has strong positioning in developed markets like Australia (leadership position), New Zealand and Singapore. The growth momentum is quite strong in these regions, particularly in Australia, where ad hoc contracts are driving growth and are offsetting pricing pressure. Moreover, the overall security services business has high ROCE and generates strong cash flow, thus providing opportunities to invest in its incubation portfolios.

Year

Revenue (Rs Cr)

EBIDA (%)

EPS (Rs)

PE (x)

FY21E

8,835

5.7

14.4

26.0

FY22E

9,781

6.1

20.2

18.5

Source: 5paisa Research, *Price and valuations ratios as on November 11, 2020