Bajaj Corp: Indicative target price at Rs 303
Bajaj Corp is the third largest player in the hair oil segment and has emerged as the dominant player in the premium light hair oil (LHO) category with its Almond Drops hair oil.
With consumers upgrading to the LHO category, the brokerage firm expects the strong volume growth momentum to continue in the coming quarters. With the prices of the key inputs stabilising, Sharekhan expects the GPM to improve in the coming quarters.
The company's thrust on enhancing the distribution reach in rural India and improving themarket share every year has helped it clock a good sales volume growth in the past few quarters. Any initiative to expand its limited product portfolio or strengthen its core business would be a key upside trigger for the stock.
At the CMP, the stock is trading at 18x its FY2014E EPS of Rs13.8 and 14.1x its FY2015E EPS of Rs 17.6.
Divi's Laboratories Ltd: Indicative target price of Rs 1262
Despite a weaker performance in Q4FY2013, the brokerage firm is confident of Divi's Laboratories' growth potential. Its recent performance was affected by the expansion process and the switching of production to new facilities which partly disrupted supplies.
The growth is expected to bounce back on normalisation of supplies by the end of Q1FY2014. It will benefit from the rupee's depreciation against major other currencies, thanks to its debt-free balance sheet and the fact that nearly 90% of its revenues come from the export market (mainly the USA and Europe).
The stock is currently trading at 17.7x and 15.0x estimated earnings for FY2014 and FY2015 respectively. The brokerage firm has a 'Buy' recommendation on the stock with a price target of Rs1,262, which implies 19x FY2015E earnings.
HCL Technologies Ltd: Indicative target price of Rs 900
HCL Tech is an IT services company providing software-led IT solutions, remote infrastructure management services and BPO services. The company has a leading position in remote infrastructure management services which has helped it win large IT outsourcing contracts. Through the Axon PLC acquisition, the company has gained a strong SAP consulting footing.
The management continues to see EBIT margin corridor of 19-20% for the coming quarter. However, with the rupeedepreciating consistently, the margin could improve further, if the rupee stays at 57-58 a dollar over the coming quarters.
Among the top 4 IT companies, HCL Tech has shown the highest sensitivity to the rupee's depreciation in terms of margin improvement in the last seven quarters.
In view of its better earnings predictability compared with its peers, stable margins and sustainable momentum in the IMS vertical, the brokerage firm recommends a 'Buy' on it with a price target of Rs900.
HDFC Bank: Indicative target price of Rs 712
HDFC Bank is expected to continue its strong growth in advances due to a strong presence in the retail segment. While the credit demand has moderated in the corporate segment, it remains reasonably strong in the retail segment which will benefit the bank.
HDFC Bank's asset quality is among the best in the sector and the bank is expected to maintain the same due to its strong credit origination practices and marginal exposure to the troubled segments. Further, the higher provisions provide comfort on the asset quality front.
Sharekhan expects HDFC Bank to deliver earnings CAGR of 23.8% over FY2013-15, leading to RoE and RoA of 22.2% and 1.8%, respectively. The brokerage believes that the bank will continue to command a premium over its peers due to a strong and consistent growth.
Sharekhan has a price target of Rs 712 for the stock.
ICICI Bank: Indicative target price of Rs 1320
ICICI Bank continues to report a strong growth in earnings led by a growth in advances and expansion in margins (2.9% in FY2013). The brokerage expects its advances to grow at 19.5% CAGR over FY2013-15. This should lead to an 18% CAGR growth in the net interest income (NII) in the same period.
ICICI Bank's asset quality has shown a turnaround as its non-performing assets (NPAs) have continued to decline over the last eleven quarters, led by contraction in slippages. This has led to a sharp reduction in the provisions and an increase in the profitability. Going forward, we expect the NPAs to decline further which will lead to lower NPA provisions and hence aid the profit growth.
The stock trades at 1.5x FY2015E BV. Moreover, given the improvement in the profitability led by lower NPA provisions, a healthy growth in the core income and improved operating metrics, we recommend Buy with a price target of Rs 1,320.
L&T: Indicative target price of Rs 1790
Larsen & Toubro (L&T), the largest engineering and construction company in India, is a direct beneficiary of the strong domestic infrastructure development and industrial capex boom.
L&T continues to impress us with its good execution skills, reporting decent numbers throughout despite the slowdown in the industrial capex cycle. Also, we have seen order inflow traction in recent quarters which enhances the revenue visibility.
Despite challenges like deferral of award decisions and stiff competition, the company has given a robust guidance of 15% growth in the future.
A sound execution track record, a healthy order book and a strong performance of its subsidiaries reinforce our faith in L&T. At the CMP, the stock is trading at 14.4x its FY2015E stand-alone earnings
Oil India Ltd: Indicative target price of Rs 650
Oil India Ltd (OIL) has several hydrocarbon discoveries across reserves in Rajasthan and the north-eastern region of India.
The total 1P (proven) and 2P (proven and probable) reserves of the company stood at 473 million barrels (mmbbls) and 941mmbbls in March 2012. In addition to the huge oil reserves, the company's reserve-replacement ratio (RRR) is quite healthy at 1.23x, which implies a comfortable level of accretion of oil reserves through new discoveries.
The brokerage firm is bullish on OIL because its huge reserves and healthy RRR would provide a reasonably stable revenue growth outlook.
Its stock is also available at an attractive valuation and is likely to see a re-rating on account of the partial deregulation of diesel prices. The fair value works out to Rs650 per share (based on the average fair value arrived at using the DCF, PE and EV/EBIDTA valuation methods).
Reliance Industries Ltd: Indicative target price of Rs 1010
Reliance Industries Ltd (RIL) has a strong presence in the refining, petrochemical and upstream exploration businesses. The refining division of the company is the highest contributor to the company's earnings and is operating efficiently with a better gross refining margin (GRM) compared with its peers in the domestic market due to the ability of its plant to refine more of heavier crude.
However, the gas production from the KrishnaGodavari-D6 field has fallen significantly in the past one year. With the government approval for additional capex, we believe production will improve going ahead.
Further, the CCEA has approved a new gas pricing formula, which increases the price of gas to $8.4/mmbtu from $4.2/mmbtu and augurs well for the company. This could provide further upside to the company's earnings.
The key concerns remain in terms of a lower than expected GRM, profitability of the petrochemical division and the company's inability to address the issue of falling gas output in the near term.
At the CMP the stock is trading at a PE of 11.9x its FY2015E EPS.
State Bank of India: Indicative target price of Rs 2450
SBI stands to benefit the most from an economic recovery, which will boost the growth in its advances and improve its asset quality. The bank's operational performance has improved led by a strong focus on the NIM, asset quality etc. The NIM came off in Q4FY2013 (due to an expansion in the low-risk segments) but remained at healthy levels (3.34%).
The bank has recognised its asset quality problems upfront compared with the other banks and has resorted to limited restructuring. Therefore, we believe the asset quality pressures will come off in the coming quarters which will boost its earnings.
The capital adequacy ratio (CAR) of the bank is healthy (tier-I CAR at 9.5%) and will support the growth in the business. The bank is expected to maintain its RoE and RoA at 15.0% and 0.9% respectively in FY2015.
The brokerage firm has a positive outlook on SBI with a price target of Rs2,450.
Sun Pharma Ltd: Indicative target price of Rs 1120
The combination of Sun Pharma, Taro Pharma, Dusa Pharma and the generic business of URL Pharma offer an excellent business model for Sun Pharma, as has been reflected in the 40% Y-o-Y revenue growth and 39% Y-o-Y profit growth in FY2013.
Though a $550-million provision related to Protonix case would erode the cash balance by 55% in FY2014, but we believe Sun Pharma is in a comfortable cash position. The rupee's depreciation against the dollar is set to positively affect Sun Pharma.
With a strong cash balance, Sun Pharma is well positioned to capitalise on the growth opportunities and inorganic initiatives. Its debt-free balance sheet insulates it from the negative impact of the volatility in the currency market.
At the CMP, Sun Pharma is trading at 28.9x and 23.3x FY2014E EPS and FY2015E EPS respectively. The brokerage firm maintains their 'Buy' recommendation on the stock, with a price target of Rs1,120, which implies 26x FY2015E EPS.
ZEE Entertainment Ltd: Indicative target price of Rs 280
Among the key stakeholders of the domestic TV industry, Sharekhan expects the broadcasters to be the prime beneficiary of the mandatory digitisation process initiated by the government.
The broadcasters would benefit from higher subscription revenues at the least incremental capex as the subscriber declaration improves in the cable industry.
ZEEL's management acknowledged that the recent TRAI recommendation of capping the advertisement time at 12 minutes per hour would have an adverse impact on its advertisement volume.
The company will take adequate hikes in the advertisement rates in order to negate the impact of reduced volumes. Thus, we expect a very minimal impact on the blended advertisement growth in FY2014 and FY2015.
The brokerage firm believes ZEEL will be the major beneficiary of the digitisation process in the years to come which coupled with a strong balance sheet and high return ratios makes it a compelling long-term growth story. Sharekhan maintains a 'Buy' rating on ZEEL with a price target of Rs280.
Bajaj Corp is the third largest player in the hair oil segment and has emerged as the dominant player in the premium light hair oil (LHO) category with its Almond Drops hair oil.
With consumers upgrading to the LHO category, the brokerage firm expects the strong volume growth momentum to continue in the coming quarters. With the prices of the key inputs stabilising, Sharekhan expects the GPM to improve in the coming quarters.
The company's thrust on enhancing the distribution reach in rural India and improving themarket share every year has helped it clock a good sales volume growth in the past few quarters. Any initiative to expand its limited product portfolio or strengthen its core business would be a key upside trigger for the stock.
At the CMP, the stock is trading at 18x its FY2014E EPS of Rs13.8 and 14.1x its FY2015E EPS of Rs 17.6.
Divi's Laboratories Ltd: Indicative target price of Rs 1262
Despite a weaker performance in Q4FY2013, the brokerage firm is confident of Divi's Laboratories' growth potential. Its recent performance was affected by the expansion process and the switching of production to new facilities which partly disrupted supplies.
The growth is expected to bounce back on normalisation of supplies by the end of Q1FY2014. It will benefit from the rupee's depreciation against major other currencies, thanks to its debt-free balance sheet and the fact that nearly 90% of its revenues come from the export market (mainly the USA and Europe).
The stock is currently trading at 17.7x and 15.0x estimated earnings for FY2014 and FY2015 respectively. The brokerage firm has a 'Buy' recommendation on the stock with a price target of Rs1,262, which implies 19x FY2015E earnings.
HCL Technologies Ltd: Indicative target price of Rs 900
HCL Tech is an IT services company providing software-led IT solutions, remote infrastructure management services and BPO services. The company has a leading position in remote infrastructure management services which has helped it win large IT outsourcing contracts. Through the Axon PLC acquisition, the company has gained a strong SAP consulting footing.
The management continues to see EBIT margin corridor of 19-20% for the coming quarter. However, with the rupeedepreciating consistently, the margin could improve further, if the rupee stays at 57-58 a dollar over the coming quarters.
Among the top 4 IT companies, HCL Tech has shown the highest sensitivity to the rupee's depreciation in terms of margin improvement in the last seven quarters.
In view of its better earnings predictability compared with its peers, stable margins and sustainable momentum in the IMS vertical, the brokerage firm recommends a 'Buy' on it with a price target of Rs900.
HDFC Bank: Indicative target price of Rs 712
HDFC Bank is expected to continue its strong growth in advances due to a strong presence in the retail segment. While the credit demand has moderated in the corporate segment, it remains reasonably strong in the retail segment which will benefit the bank.
HDFC Bank's asset quality is among the best in the sector and the bank is expected to maintain the same due to its strong credit origination practices and marginal exposure to the troubled segments. Further, the higher provisions provide comfort on the asset quality front.
Sharekhan expects HDFC Bank to deliver earnings CAGR of 23.8% over FY2013-15, leading to RoE and RoA of 22.2% and 1.8%, respectively. The brokerage believes that the bank will continue to command a premium over its peers due to a strong and consistent growth.
Sharekhan has a price target of Rs 712 for the stock.
ICICI Bank: Indicative target price of Rs 1320
ICICI Bank continues to report a strong growth in earnings led by a growth in advances and expansion in margins (2.9% in FY2013). The brokerage expects its advances to grow at 19.5% CAGR over FY2013-15. This should lead to an 18% CAGR growth in the net interest income (NII) in the same period.
ICICI Bank's asset quality has shown a turnaround as its non-performing assets (NPAs) have continued to decline over the last eleven quarters, led by contraction in slippages. This has led to a sharp reduction in the provisions and an increase in the profitability. Going forward, we expect the NPAs to decline further which will lead to lower NPA provisions and hence aid the profit growth.
The stock trades at 1.5x FY2015E BV. Moreover, given the improvement in the profitability led by lower NPA provisions, a healthy growth in the core income and improved operating metrics, we recommend Buy with a price target of Rs 1,320.
L&T: Indicative target price of Rs 1790
Larsen & Toubro (L&T), the largest engineering and construction company in India, is a direct beneficiary of the strong domestic infrastructure development and industrial capex boom.
L&T continues to impress us with its good execution skills, reporting decent numbers throughout despite the slowdown in the industrial capex cycle. Also, we have seen order inflow traction in recent quarters which enhances the revenue visibility.
Despite challenges like deferral of award decisions and stiff competition, the company has given a robust guidance of 15% growth in the future.
A sound execution track record, a healthy order book and a strong performance of its subsidiaries reinforce our faith in L&T. At the CMP, the stock is trading at 14.4x its FY2015E stand-alone earnings
Oil India Ltd: Indicative target price of Rs 650
Oil India Ltd (OIL) has several hydrocarbon discoveries across reserves in Rajasthan and the north-eastern region of India.
The total 1P (proven) and 2P (proven and probable) reserves of the company stood at 473 million barrels (mmbbls) and 941mmbbls in March 2012. In addition to the huge oil reserves, the company's reserve-replacement ratio (RRR) is quite healthy at 1.23x, which implies a comfortable level of accretion of oil reserves through new discoveries.
The brokerage firm is bullish on OIL because its huge reserves and healthy RRR would provide a reasonably stable revenue growth outlook.
Its stock is also available at an attractive valuation and is likely to see a re-rating on account of the partial deregulation of diesel prices. The fair value works out to Rs650 per share (based on the average fair value arrived at using the DCF, PE and EV/EBIDTA valuation methods).
Reliance Industries Ltd: Indicative target price of Rs 1010
Reliance Industries Ltd (RIL) has a strong presence in the refining, petrochemical and upstream exploration businesses. The refining division of the company is the highest contributor to the company's earnings and is operating efficiently with a better gross refining margin (GRM) compared with its peers in the domestic market due to the ability of its plant to refine more of heavier crude.
However, the gas production from the KrishnaGodavari-D6 field has fallen significantly in the past one year. With the government approval for additional capex, we believe production will improve going ahead.
Further, the CCEA has approved a new gas pricing formula, which increases the price of gas to $8.4/mmbtu from $4.2/mmbtu and augurs well for the company. This could provide further upside to the company's earnings.
The key concerns remain in terms of a lower than expected GRM, profitability of the petrochemical division and the company's inability to address the issue of falling gas output in the near term.
At the CMP the stock is trading at a PE of 11.9x its FY2015E EPS.
State Bank of India: Indicative target price of Rs 2450
SBI stands to benefit the most from an economic recovery, which will boost the growth in its advances and improve its asset quality. The bank's operational performance has improved led by a strong focus on the NIM, asset quality etc. The NIM came off in Q4FY2013 (due to an expansion in the low-risk segments) but remained at healthy levels (3.34%).
The bank has recognised its asset quality problems upfront compared with the other banks and has resorted to limited restructuring. Therefore, we believe the asset quality pressures will come off in the coming quarters which will boost its earnings.
The capital adequacy ratio (CAR) of the bank is healthy (tier-I CAR at 9.5%) and will support the growth in the business. The bank is expected to maintain its RoE and RoA at 15.0% and 0.9% respectively in FY2015.
The brokerage firm has a positive outlook on SBI with a price target of Rs2,450.
Sun Pharma Ltd: Indicative target price of Rs 1120
The combination of Sun Pharma, Taro Pharma, Dusa Pharma and the generic business of URL Pharma offer an excellent business model for Sun Pharma, as has been reflected in the 40% Y-o-Y revenue growth and 39% Y-o-Y profit growth in FY2013.
Though a $550-million provision related to Protonix case would erode the cash balance by 55% in FY2014, but we believe Sun Pharma is in a comfortable cash position. The rupee's depreciation against the dollar is set to positively affect Sun Pharma.
With a strong cash balance, Sun Pharma is well positioned to capitalise on the growth opportunities and inorganic initiatives. Its debt-free balance sheet insulates it from the negative impact of the volatility in the currency market.
At the CMP, Sun Pharma is trading at 28.9x and 23.3x FY2014E EPS and FY2015E EPS respectively. The brokerage firm maintains their 'Buy' recommendation on the stock, with a price target of Rs1,120, which implies 26x FY2015E EPS.
ZEE Entertainment Ltd: Indicative target price of Rs 280
Among the key stakeholders of the domestic TV industry, Sharekhan expects the broadcasters to be the prime beneficiary of the mandatory digitisation process initiated by the government.
The broadcasters would benefit from higher subscription revenues at the least incremental capex as the subscriber declaration improves in the cable industry.
ZEEL's management acknowledged that the recent TRAI recommendation of capping the advertisement time at 12 minutes per hour would have an adverse impact on its advertisement volume.
The company will take adequate hikes in the advertisement rates in order to negate the impact of reduced volumes. Thus, we expect a very minimal impact on the blended advertisement growth in FY2014 and FY2015.
The brokerage firm believes ZEEL will be the major beneficiary of the digitisation process in the years to come which coupled with a strong balance sheet and high return ratios makes it a compelling long-term growth story. Sharekhan maintains a 'Buy' rating on ZEEL with a price target of Rs280.
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