Article

5 Large-Cap Stocks to Buy

01 Sep 2020 Nikita Bhoota

Most of the investors would have stayed away from equity markets this year as the market started tumbling and entered a bear phase on account of covid19 outbreak across the world. However, the Sensex and Nifty jumped ~50% and ~52% respectively from March 2020 lows to August 26, 2020 supported by the huge global liquidity and coordinated efforts by countries across the globe to fight coronavirus (Covid-19) pandemic improved investor confidence.

However, some of the investors may think to liquidate their portfolio to take the advantage of rise in the markets. Additionally, investors may also fear that the increase of covid cases and delay in finding out the vaccine to cure covid19 disease will drag the market sooner or later. However, investors can consider investing in large-cap stocks. 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.

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 839
Target Price: Rs1,050 (1-year)
Upside:25.1 %

Aided by strong distribution, SBI Life, India’s largest private life insurer on an APE basis, is well placed to leverage this opportunity. SBILI’s distribution reach and customer base are enviable and have propelled it into becoming the largest private player in the space. Optimal-costs structure, SBI banca partnership and high agent productivity are key competitive advantages, apart from a massive under-penetrated customer base. SBILI’s product portfolio has changed composition over the years. While ULIPs were the key growth driver earlier, focus on protection is rising. This should result in structural expansion in margins.  SBI Life could show greater resilience against macro pressures vs. peers, helped by strong renewals. We forecast VNB Cagr of 11% over FY20-22E. The stock trades at 2.8X FY21E P/EV

Year

New Premuim Income (Rs Cr)

VNB (Rs Cr)

VNB margin (%)

PAT (Rs Cr)

EV per share

P/EV (x)

FY20

40,324

2,010

18.7

1,422

263

3.2

FY21E

45,654

1,963

18.5

1,566

298

2.8

FY22E

54,424

2,495

20.3

1,960

343

2.4

Source: 5paisa Research

Power Grid (PGCIL)

CMP: Rs.185
Target Price: Rs.220(1-year)
Upside: 18.9%

PGCIL is targeting project completion to the tune of Rs.20,000cr in FY21E, on its own and via subsidiaries. Debtor days have started decreasing, as SEBs of AP, Telangana, UP, etc have availed funds from PFC/REC, to pay off dues; others like Rajasthan, Maharashtra, etc are set to avail funds, which would lower the receivables.  PGCIL is well placed to bid and win projects, as & when announced by the Government; new projects would be driven by investments in RE projects, mainly driven by Government focus.  Company’s current project pipeline is Rs.51,000 cr (standalone: Rs.39,000cr) and adequate for clocking growth over the next 2-3 years. InvIT approvals are yet to come through. We expect marginal growth in revenue and PAT CAGR of 5.4% and 6% over FY20-22E respectively. The stock trades at 9.1x FY21EPS

Year

Net Sales (Rs Cr)

OPM (%)

PAT (Rs Cr)

EPS (Rs)

PE (x)

FY20

37,868

87.4

10,811

20.7

9.0

FY21E

38,797

86.1

10,612

20.3

9.1

FY22E

42,066

85.9

12,146

23.2

8.0

Source: 5paisa Research

Bharti Airtel

CMP: Rs.515

Target Price: Rs.612 (1-year)

Upside: 18.8%

The company has been competing well with JIO in domestic mobile revenue market share and has continued its aggressive capex. Prospects for market share defence look bright.  While prospects for tariff hikes looks weak for next few months, it is almost certain in the next 12-18 months and will have a massive positive impact on cash flows. 24.4% Ebitda cagr over FY20-22E, prospects for RMS improvement at the expense of Vodafone Idea and some capex moderation will bring sharp FCF improvement   Absence of Vodafone Idea from spectrum auctions will enable addition of capacity economically.  We expect revenue CAGR of 16.1% over FY20-22E. The stock is trading at EV/EBITDA of 11.2x FY21E

Year

Net Sales (Rs Cr)

OPM (%)

Pre-Exceptional PAT(Rs Cr)

EPS(Rs)

EV/EBITDA

FY20

87,539

41.8

-9,800

-18.0

13.0

FY21E

97,200

42.7

700

1.3

11.2

FY22E

1,18,000

48.0

9,400

17.2

8.4

Source: 5paisa Research

ICICI Lombard (ILOM)

CMP: Rs1,264

Target Price: Rs1,400 (1-year)

Upside: 10.8%

ICICI Lombard (ILOM) has entered into a definitive agreement, to acquire Bharti AXA’s (BAX’) general insurance business via an equity swap for an implied value of Rs46.16bn, resulting in 7.9% dilution, with ICICI Bank’s stake falling to 48.1% (from 51.9%). The merged entity would have a GDPI market share of 8.7% (for FY20) and is expected to close by end-FY21. Operational synergies include expansion in South India, stronger motor franchise, significant cost savings, a robust corporate & branch distribution network and tax savings. The deal involves an equity swap at 2:115 ratio, resulting in issuance of 35.76m shares. The merger is subject to approvals, including ones from RBI and IRDAI. While there is risk of regulator asking ICICI to reduce holding in ILOM as a condition for approval (e.g. HDFC Ergo-Apollo), ICICI is committed to closing the deal irrespective, as per Mgmt. Despite stake falling to 48.1%, retaining Board control may help them consolidate ILOM. Management believes this transaction will enable long-term value creation for shareholders through both, revenue and cost synergies. The stock trades at 35.8x FY21E EPS.

 

Year

GDPI (Rs Cr)

PAT (Rs Cr)

EPS (Rs)

PE(x)

FY20

13,312

1,193

26.28

48.1

FY21E

13,489

1,601

35.26

35.8

FY22E

15,864

1,889

41.61

30.4

 Source: 5paisa Research

Infosys (INFO)

CMP: Rs951

Target Price: Rs1,050 (1-year)

Upside: 15%

INFO is well placed to gain wallet share within clients, led by its cloud offerings and automation-led efficiency solutions, further boosted by an institutionalized large deals team with focus on higher win rates. With ~60% of revenue coming from lesser impacted verticals including Communications and Hi-Tech, we expect revenue CAGR of 19.2% over FY20-FY22E.   INFO 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. INFO is focused on strategic margin levers including pyramid optimization, improved onsite mix, lower subcontracting costs and automation. We expect margins to remain resilient in the near term and expand by ~130bps over FY20-22E. The stock trades at 23.1x FY21EPS.

 

Year

Net Sales (Rs Cr)

OPM (%)

PAT(Rs Cr)

EPS(Rs)

PE(x)

FY20

90,791

24.5%

16,595

39.0

24.4

FY21E

97,355

25.1%

17,505

41.1

23.1

FY22E

1,08,207

25.8%

20,195

47.4

20.1

Source: 5paisa Research

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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 Large-Cap Stocks to Buy

01 Sep 2020 Nikita Bhoota

Most of the investors would have stayed away from equity markets this year as the market started tumbling and entered a bear phase on account of covid19 outbreak across the world. However, the Sensex and Nifty jumped ~50% and ~52% respectively from March 2020 lows to August 26, 2020 supported by the huge global liquidity and coordinated efforts by countries across the globe to fight coronavirus (Covid-19) pandemic improved investor confidence.

However, some of the investors may think to liquidate their portfolio to take the advantage of rise in the markets. Additionally, investors may also fear that the increase of covid cases and delay in finding out the vaccine to cure covid19 disease will drag the market sooner or later. However, investors can consider investing in large-cap stocks. 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.

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 839
Target Price: Rs1,050 (1-year)
Upside:25.1 %

Aided by strong distribution, SBI Life, India’s largest private life insurer on an APE basis, is well placed to leverage this opportunity. SBILI’s distribution reach and customer base are enviable and have propelled it into becoming the largest private player in the space. Optimal-costs structure, SBI banca partnership and high agent productivity are key competitive advantages, apart from a massive under-penetrated customer base. SBILI’s product portfolio has changed composition over the years. While ULIPs were the key growth driver earlier, focus on protection is rising. This should result in structural expansion in margins.  SBI Life could show greater resilience against macro pressures vs. peers, helped by strong renewals. We forecast VNB Cagr of 11% over FY20-22E. The stock trades at 2.8X FY21E P/EV

Year

New Premuim Income (Rs Cr)

VNB (Rs Cr)

VNB margin (%)

PAT (Rs Cr)

EV per share

P/EV (x)

FY20

40,324

2,010

18.7

1,422

263

3.2

FY21E

45,654

1,963

18.5

1,566

298

2.8

FY22E

54,424

2,495

20.3

1,960

343

2.4

Source: 5paisa Research

Power Grid (PGCIL)

CMP: Rs.185
Target Price: Rs.220(1-year)
Upside: 18.9%

PGCIL is targeting project completion to the tune of Rs.20,000cr in FY21E, on its own and via subsidiaries. Debtor days have started decreasing, as SEBs of AP, Telangana, UP, etc have availed funds from PFC/REC, to pay off dues; others like Rajasthan, Maharashtra, etc are set to avail funds, which would lower the receivables.  PGCIL is well placed to bid and win projects, as & when announced by the Government; new projects would be driven by investments in RE projects, mainly driven by Government focus.  Company’s current project pipeline is Rs.51,000 cr (standalone: Rs.39,000cr) and adequate for clocking growth over the next 2-3 years. InvIT approvals are yet to come through. We expect marginal growth in revenue and PAT CAGR of 5.4% and 6% over FY20-22E respectively. The stock trades at 9.1x FY21EPS

Year

Net Sales (Rs Cr)

OPM (%)

PAT (Rs Cr)

EPS (Rs)

PE (x)

FY20

37,868

87.4

10,811

20.7

9.0

FY21E

38,797

86.1

10,612

20.3

9.1

FY22E

42,066

85.9

12,146

23.2

8.0

Source: 5paisa Research

Bharti Airtel

CMP: Rs.515

Target Price: Rs.612 (1-year)

Upside: 18.8%

The company has been competing well with JIO in domestic mobile revenue market share and has continued its aggressive capex. Prospects for market share defence look bright.  While prospects for tariff hikes looks weak for next few months, it is almost certain in the next 12-18 months and will have a massive positive impact on cash flows. 24.4% Ebitda cagr over FY20-22E, prospects for RMS improvement at the expense of Vodafone Idea and some capex moderation will bring sharp FCF improvement   Absence of Vodafone Idea from spectrum auctions will enable addition of capacity economically.  We expect revenue CAGR of 16.1% over FY20-22E. The stock is trading at EV/EBITDA of 11.2x FY21E

Year

Net Sales (Rs Cr)

OPM (%)

Pre-Exceptional PAT(Rs Cr)

EPS(Rs)

EV/EBITDA

FY20

87,539

41.8

-9,800

-18.0

13.0

FY21E

97,200

42.7

700

1.3

11.2

FY22E

1,18,000

48.0

9,400

17.2

8.4

Source: 5paisa Research

ICICI Lombard (ILOM)

CMP: Rs1,264

Target Price: Rs1,400 (1-year)

Upside: 10.8%

ICICI Lombard (ILOM) has entered into a definitive agreement, to acquire Bharti AXA’s (BAX’) general insurance business via an equity swap for an implied value of Rs46.16bn, resulting in 7.9% dilution, with ICICI Bank’s stake falling to 48.1% (from 51.9%). The merged entity would have a GDPI market share of 8.7% (for FY20) and is expected to close by end-FY21. Operational synergies include expansion in South India, stronger motor franchise, significant cost savings, a robust corporate & branch distribution network and tax savings. The deal involves an equity swap at 2:115 ratio, resulting in issuance of 35.76m shares. The merger is subject to approvals, including ones from RBI and IRDAI. While there is risk of regulator asking ICICI to reduce holding in ILOM as a condition for approval (e.g. HDFC Ergo-Apollo), ICICI is committed to closing the deal irrespective, as per Mgmt. Despite stake falling to 48.1%, retaining Board control may help them consolidate ILOM. Management believes this transaction will enable long-term value creation for shareholders through both, revenue and cost synergies. The stock trades at 35.8x FY21E EPS.

 

Year

GDPI (Rs Cr)

PAT (Rs Cr)

EPS (Rs)

PE(x)

FY20

13,312

1,193

26.28

48.1

FY21E

13,489

1,601

35.26

35.8

FY22E

15,864

1,889

41.61

30.4

 Source: 5paisa Research

Infosys (INFO)

CMP: Rs951

Target Price: Rs1,050 (1-year)

Upside: 15%

INFO is well placed to gain wallet share within clients, led by its cloud offerings and automation-led efficiency solutions, further boosted by an institutionalized large deals team with focus on higher win rates. With ~60% of revenue coming from lesser impacted verticals including Communications and Hi-Tech, we expect revenue CAGR of 19.2% over FY20-FY22E.   INFO 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. INFO is focused on strategic margin levers including pyramid optimization, improved onsite mix, lower subcontracting costs and automation. We expect margins to remain resilient in the near term and expand by ~130bps over FY20-22E. The stock trades at 23.1x FY21EPS.

 

Year

Net Sales (Rs Cr)

OPM (%)

PAT(Rs Cr)

EPS(Rs)

PE(x)

FY20

90,791

24.5%

16,595

39.0

24.4

FY21E

97,355

25.1%

17,505

41.1

23.1

FY22E

1,08,207

25.8%

20,195

47.4

20.1

Source: 5paisa Research