Article

5 Stocks You Can Buy This Diwali

24 Oct 2019 Nikita Bhoota

The Indian equity market has been in a somber mood since last Diwali. Midcap and Smallcap indices Nifty Midcap 50, Nifty Smallcap 50, S&P BSE Midcap and S&P BSE Smallcap corrected 6.5%,11.4%, 3% and 9.3% respectively during November 07, 2018 to October 23, 2019.

Subdued earnings, economic slowdown, liquidity crisis, asset quality woes, corporate Governance issues in some companies, global growth concerns and unending US-China trade war affected the overall performance of the market. On the contrary, benchmark indices Nifty 50 and Sensex rallied 9.5% and 10.8% respectively in the same period supported by buying in blue-chip stocks. 

Considering the volatility in the stock markets are you also wondering which stocks to buy this Diwali? With just a week to go for Samvat 2076, 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 in order to enhance their portfolio.

Reliance Industries (RIL)

CMP- Rs. 1,392
Target Price: Rs. 1,594
Upside:15%

Reliance Industries, is estimated to re-rate on account of its overall de-leveraging drive (~Rs1.1 lakh cr via fiber/tower asset sale, 20% O&C sale to Armco and roping investor for consumer business) coupled with strong traction in Retail and Telecom (Jio) business. We expect favorable diesel & petrol crack spreads led by opportunistic sourcing and refinery complexity, which will aid in GRM improvement (US$9.2/bbl in FY19 to US$10.5/bbl), making up for weakness in petchem business. We expect improvement in Jio’s EBITDA & cash flows (recovery of IUC) leading to higher EV for the business. Further, subscriber additions and end of capex in the near term are key positives. Robust same sales growth and geographic expansion is likely to aid retail EBITDA margins.  Overall, we expect consolidated revenue/EPS CAGR of 23%/18% over FY19-21E.  The stock trading at 15.9x FY21E EPS

Year Net Sales (Rs cr) OPM (%) PAT (Rs cr) EPS (Rs) PE (x)
FY19 567,100 14.8 39,600 62.5 22.3
FY20 805,400 11.7 49200 77.6 17.9
FY21E 864,400 12.1 55,400 87.4 15.9

Source:5 Paisa Research

ICICI Bank

CMP- Rs. 455
Target Price: Rs. 505
Upside:12%

ICICI Bank’s, focus on improving margins, lower credit cost and initiatives to bring down operating costs will help to achieve 13.4% RoE in FY21E from 3.2% in FY19. We believe that the Bank is witnessing the end of recognition of stressed loan cycle, which along with improving PCR clearly denotes moderation in credit cost going forward. With strong liability franchise, superior customer outreach across business segments and a healthy capital position, we expect the Bank to continue to grow its retail portfolio which now constitutes 60% of the bank’s advances. Also, its healthy capitalization will likely support loan growth. Improving cost-income ratio and declining slippages to likely aid profitability and drive re-rating. Improving momentum in fees & operating leverage to drive earnings over FY19-21E. The stock is trading attractively at 2.2x FY21E P/BV

Year NII (Rs cr) PAT (Rs cr) EPS (Rs) P/BV (x)
FY19 586,650 3,360 5.2 2.7
FY20E 673,390 12,520 19.4 2.4
FY21E 775,030 16,530 25.6 2.2

Source:5 Paisa Research

Larsen & Toubro (L&T)

CMP- Rs. 1,430
Target Price: Rs. 1,875
Upside:31%

L&T is India’s largest engineering and construction company, well placed to leverage the uptick in the investment cycle. We believe that the government’s push on infrastructure and widening base of mid-size orders will aid faster execution. L&T's strong order book of Rs2,94,014cr (2.8x TTM sales) at Q1FY20-end provides healthy revenue visibility for the next 2 years. Further, monetisation of non-core assets will help release capital and improve return ratios. We estimate the company to report revenue CAGR of 19% over FY19- 21E with a flat EBITDA margin. PAT CAGR is estimated at 17% over the same period. The stock trading at 16.4x FY21E EPS

Year Net Sales (Rs cr) OPM (%) PAT (Rs cr) EPS (Rs) PE (x)
FY19 141,007 11.6 8,905 63.5 22.5
FY20E 169,970 11.7 9,698 69.2 20.7
FY21E 200,402 11.7 12,225 87.2 16.4

Source:5 Paisa Research

Gujarat Gas

CMP- Rs. 178
Target Price: Rs. 229
Upside:28%

Gujarat Gas, India's largest city gas distribution company, is expected to post sector leading earnings growth over FY19-21 on the back of strong volumes. Industrial volumes (70% of overall FY19 volumes) are likely to grow at 35% CAGR over FY19-21E on the back of strong Morbi volume growth (~51% CAGR) post regulatory orders coupled with benign LNG prices. CNG (22% of overall FY19 volumes) and Domestic PNG (8%) are expected to post ~12% volume CAGR over the same period. Hence, we expect overall volume CAGR of 28% over FY19-21E. We estimate EBITDA margin to expand by 283bps to 15.7% over FY19-21E (stable spreads). Lower spot LNG price leaves scope for further margin expansion as Gujarat Gas imports ~70% of its requirement via ST cargo. Lower tax rate is expected to assist in EPS CAGR of 49% over FY19-21E. The stock trading at 13.2x FY21E EPS

Year Net Sales (Rs cr) OPM (%) PAT (Rs cr) EPS (Rs) PE (x)
FY19 7,754 12.8 417 6.1 29.4
FY20E 10,158 15.4 754 11.0 16.2
FY21E 11,583 15.7 930 13.5 13.2

Source:5 Paisa Research

Atul Ltd

CMP- Rs. 4,225
Target Price: Rs. 4,791
Upside:13%

Atul Limited, an integrated chemicals company, is likely to benefit from industry tailwinds owing to its diversified business portfolio and strong chemistry skills. Expected rebound in volumes led by crop protection, better mix and de-bottlenecking are expected to drive 12.6% revenue CAGR over FY19-21E.  Operational efficiencies (incl. performance of JVs and Subsidiaries) and better product mix are expected to drive earnings CAGR of 22.6% over FY19-21E. Moreover, Atul being a significant net exporter and full tax payer stands to benefit from INR depreciation and corporate IT cuts. Atul is debt free and generates strong operating cash flows, which will be utilized for its current capex plan worth Rs412cr (with a revenue potential of ~Rs850cr). The stock trading at 19.1x FY21E EPS

 

Year Net Sales (Rs cr) OPM(%) PAT (Rs cr) PS (Rs) PE (x)
FY19 4,037 19.0 436 147.0 28.7
FY20E 4,592 20.3 560 188.8 22.4
FY21E 5,115 21.4 655 220.8 19.1

Source:5 Paisa Research

 

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5 Stocks You Can Buy This Diwali

24 Oct 2019 Nikita Bhoota

The Indian equity market has been in a somber mood since last Diwali. Midcap and Smallcap indices Nifty Midcap 50, Nifty Smallcap 50, S&P BSE Midcap and S&P BSE Smallcap corrected 6.5%,11.4%, 3% and 9.3% respectively during November 07, 2018 to October 23, 2019.

Subdued earnings, economic slowdown, liquidity crisis, asset quality woes, corporate Governance issues in some companies, global growth concerns and unending US-China trade war affected the overall performance of the market. On the contrary, benchmark indices Nifty 50 and Sensex rallied 9.5% and 10.8% respectively in the same period supported by buying in blue-chip stocks. 

Considering the volatility in the stock markets are you also wondering which stocks to buy this Diwali? With just a week to go for Samvat 2076, 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 in order to enhance their portfolio.

Reliance Industries (RIL)

CMP- Rs. 1,392
Target Price: Rs. 1,594
Upside:15%

Reliance Industries, is estimated to re-rate on account of its overall de-leveraging drive (~Rs1.1 lakh cr via fiber/tower asset sale, 20% O&C sale to Armco and roping investor for consumer business) coupled with strong traction in Retail and Telecom (Jio) business. We expect favorable diesel & petrol crack spreads led by opportunistic sourcing and refinery complexity, which will aid in GRM improvement (US$9.2/bbl in FY19 to US$10.5/bbl), making up for weakness in petchem business. We expect improvement in Jio’s EBITDA & cash flows (recovery of IUC) leading to higher EV for the business. Further, subscriber additions and end of capex in the near term are key positives. Robust same sales growth and geographic expansion is likely to aid retail EBITDA margins.  Overall, we expect consolidated revenue/EPS CAGR of 23%/18% over FY19-21E.  The stock trading at 15.9x FY21E EPS

Year Net Sales (Rs cr) OPM (%) PAT (Rs cr) EPS (Rs) PE (x)
FY19 567,100 14.8 39,600 62.5 22.3
FY20 805,400 11.7 49200 77.6 17.9
FY21E 864,400 12.1 55,400 87.4 15.9

Source:5 Paisa Research

ICICI Bank

CMP- Rs. 455
Target Price: Rs. 505
Upside:12%

ICICI Bank’s, focus on improving margins, lower credit cost and initiatives to bring down operating costs will help to achieve 13.4% RoE in FY21E from 3.2% in FY19. We believe that the Bank is witnessing the end of recognition of stressed loan cycle, which along with improving PCR clearly denotes moderation in credit cost going forward. With strong liability franchise, superior customer outreach across business segments and a healthy capital position, we expect the Bank to continue to grow its retail portfolio which now constitutes 60% of the bank’s advances. Also, its healthy capitalization will likely support loan growth. Improving cost-income ratio and declining slippages to likely aid profitability and drive re-rating. Improving momentum in fees & operating leverage to drive earnings over FY19-21E. The stock is trading attractively at 2.2x FY21E P/BV

Year NII (Rs cr) PAT (Rs cr) EPS (Rs) P/BV (x)
FY19 586,650 3,360 5.2 2.7
FY20E 673,390 12,520 19.4 2.4
FY21E 775,030 16,530 25.6 2.2

Source:5 Paisa Research

Larsen & Toubro (L&T)

CMP- Rs. 1,430
Target Price: Rs. 1,875
Upside:31%

L&T is India’s largest engineering and construction company, well placed to leverage the uptick in the investment cycle. We believe that the government’s push on infrastructure and widening base of mid-size orders will aid faster execution. L&T's strong order book of Rs2,94,014cr (2.8x TTM sales) at Q1FY20-end provides healthy revenue visibility for the next 2 years. Further, monetisation of non-core assets will help release capital and improve return ratios. We estimate the company to report revenue CAGR of 19% over FY19- 21E with a flat EBITDA margin. PAT CAGR is estimated at 17% over the same period. The stock trading at 16.4x FY21E EPS

Year Net Sales (Rs cr) OPM (%) PAT (Rs cr) EPS (Rs) PE (x)
FY19 141,007 11.6 8,905 63.5 22.5
FY20E 169,970 11.7 9,698 69.2 20.7
FY21E 200,402 11.7 12,225 87.2 16.4

Source:5 Paisa Research

Gujarat Gas

CMP- Rs. 178
Target Price: Rs. 229
Upside:28%

Gujarat Gas, India's largest city gas distribution company, is expected to post sector leading earnings growth over FY19-21 on the back of strong volumes. Industrial volumes (70% of overall FY19 volumes) are likely to grow at 35% CAGR over FY19-21E on the back of strong Morbi volume growth (~51% CAGR) post regulatory orders coupled with benign LNG prices. CNG (22% of overall FY19 volumes) and Domestic PNG (8%) are expected to post ~12% volume CAGR over the same period. Hence, we expect overall volume CAGR of 28% over FY19-21E. We estimate EBITDA margin to expand by 283bps to 15.7% over FY19-21E (stable spreads). Lower spot LNG price leaves scope for further margin expansion as Gujarat Gas imports ~70% of its requirement via ST cargo. Lower tax rate is expected to assist in EPS CAGR of 49% over FY19-21E. The stock trading at 13.2x FY21E EPS

Year Net Sales (Rs cr) OPM (%) PAT (Rs cr) EPS (Rs) PE (x)
FY19 7,754 12.8 417 6.1 29.4
FY20E 10,158 15.4 754 11.0 16.2
FY21E 11,583 15.7 930 13.5 13.2

Source:5 Paisa Research

Atul Ltd

CMP- Rs. 4,225
Target Price: Rs. 4,791
Upside:13%

Atul Limited, an integrated chemicals company, is likely to benefit from industry tailwinds owing to its diversified business portfolio and strong chemistry skills. Expected rebound in volumes led by crop protection, better mix and de-bottlenecking are expected to drive 12.6% revenue CAGR over FY19-21E.  Operational efficiencies (incl. performance of JVs and Subsidiaries) and better product mix are expected to drive earnings CAGR of 22.6% over FY19-21E. Moreover, Atul being a significant net exporter and full tax payer stands to benefit from INR depreciation and corporate IT cuts. Atul is debt free and generates strong operating cash flows, which will be utilized for its current capex plan worth Rs412cr (with a revenue potential of ~Rs850cr). The stock trading at 19.1x FY21E EPS

 

Year Net Sales (Rs cr) OPM(%) PAT (Rs cr) PS (Rs) PE (x)
FY19 4,037 19.0 436 147.0 28.7
FY20E 4,592 20.3 560 188.8 22.4
FY21E 5,115 21.4 655 220.8 19.1

Source:5 Paisa Research

 

Research Disclaimer