Brokerage House Prabhudas Lilladher has been bullish on State Bank of India (SBI), Infosys and Aurobindo Pharma in the large cap space. It has specifically recommended State Bank of India stocks as it sees the lender as fundamentally stronger one in the banking space, especially in the PSU space.
The brokerage house preferred picks continue to be HDFC Bank, Kotak Mahindra Bank, and State Bank of India among financials, Larsen & Toubro and Sadbhav Engineering among Engineering & Capital Goods, Infosys, Hexaware and NIIT Tech among IT, ACC among Basic materials, with Glenmark, and Aurobindo Pharma among Pharmaceuticals, Britannia and HUL in FMCG, Indian Oil Corporation in Oil & Gas, and Navneet Education and VRL Logistics among cargo logistics.
We take a look at the reasons why the brokerage house is bullish on these 3 stocks
State Bank of India (SBI)
Target price: Rs 300
The public sector bank registered 31.72 per cent fall in net profit at Rs 2,520.96 crore for the first quarter ended June 30, 2016 as compared to Rs 3,692.43 crore in the corresponding quarter a year ago. For the quarter under review, fresh bad loans of the bank stood at Rs 8790 crore against Rs 30,313 crore in the sequential quarter ended March 31, 2016. The brokerage house also notes that the proportion of net stressed assets for the bank is lowest amongst large PSU banks at around 3.3 per cent of FY17E loans. On merger with its subsidiaries, the brokerage house said, “Merger of the subsidiaries to form one behemoth that will add value to overall bank reducing cost, improve capital efficiency and improve business. . Bank expects to merge its banking subsidiaries by Q3FY17 or FY17 end, as bank has undertaken on aligning asset quality with itself, while it does not expect to have integration and opex issues like pension cost.
Share price of the bank closed 4.28 per cent down at Rs 252.70 on Monday, Sept 12, 2016.
Target price: Rs 1,400
The brokerage house believes that the IT company stands out among its peer group in terms of its revenue and right investments. During its first quarter results, the company announced ESOP programme to retain its employees. Infosys reported 4.47 per cent decline in consolidated net profit at Rs 3,436 crore for the first quarter ended June 30, 2016 as compared to Rs 3597 crore in the sequential quarter ended March 31, 2016. The company has reported Rs 3028 crore net profit in the corresponding quarter a year ago. While announcing its June quarter results, the company cut its constant revenue guidance for the financial year ended March 31, 2017 to 10.5-12 per cent from 11.5-13.5 per cent earlier. However the brokerage house sees it a better bet in the sector. It said, ” Despite the revenue miss, Infosys stand outs among the peer group with double digit USD revenue and USD EBIT growth and stable EBIT margins on YoY basis. Company is on track to report industry leading growth in FY17. Company is making right investments in digital, automation and emerging technologies. Sector headwinds related to Brexit and global macro‐economic challenges persist. However, Infosys is relatively better placed in the sector.
Share price of the software major closed 1.74 per cent up at Rs 1054.00 on Monday, September 12, 2016
Target price: Rs 943
The brokerage house feels that the pharma company’s strategy to leverage on its manufacturing and strong product filings capability is likely to result in strong earnings growth. Its unlocking injectables portfolio with launches of more products from Unit IV would accelerate growth and margin expansion in US. Prabhudas Lilladher said ,” The main drivers for Aurobindo are business mix improvement with more formulation sales scaling up of Aurolife’s control substances sales, scale‐up of injectables business and higher operating cash flow to reduce debt.”
Better cash flow from launches of high margin and limited competition drugs to further reduce gearing ratio and narrow valuation differential with peers in the industry.
Share price of the company ended 2.36 per cent down at Rs 783.75 on Monday, September 12, 2016.