Brokerage house Angel Broking is holding a positive view on the markets and believes that favourable macro cues such as low inflation, declining interest rates, cheap global commodities and strong governance are likely to drive improvement in corporate performance over the next 18-24 months.
The brokerage house in a note said, “In our view, India is best placed within the emerging economies spaceand is likely to continue attracting higher fund inflows in the medium-term, notwithstanding any near-term global concerns.”
In a report, Angel Broking recommends five stocks for this Diwali which can give lucrative return of upto 37 per cent in the next few quarters.
Surya Roshni (upside 37%): The brokerage house expects Surya Roshni (SRL) to benefit from the structural shift in the lighting industry towards LED lighting, which is expected to grow at a CAGR of 28% over FY2015E-21E. SRL is the second largest lighting company in India with a market share of around 25 per cent. With demand for LEDs expected to rise, the company would be a key beneficiary, given that the company’s “Surya” brand is well recognised and has superior market reach comprising of 2 lakh plus retailers.
According to Angel Broking, SRL would benefit from a higher contribution from the Lighting business and a lower interest rate environment, going forward. SRL trades at cheap valuation of 7.3x its FY2017 earnings. The brokerage house has a ‘Buy’ rating on the stock with a target price of Rs 183.
HCL Technologies (upside 30%): In terms of order flow in FY2015, HCL Tech has signed 58 transformational engagements with $5bn+ of TCV. During 1QFY2016, the company has signed in excess of $1bn worth of orders and has indicated that its order book is 10 per cent higher than its highest order book. These bookings saw significant momentum driven by Next-gen ITO, Engineering Services Outsourcing, Digital and Modern Apps deals, each of which had a component of new technology constructs like Digitalisation, Cloud etc. Angel Broking expects HCL Tech to post a USD and INR revenue CAGR of 13 per cent and 13.2 per cent, respectively, over FY2015-17E. On the operating front, HCL Tech’s EBIT margin has been around 22.3 per cent in FY2015, a dip of 185 bp over the previous financial year. Going ahead, the Management expects EBIT margins to sustain at 21-22 per cent, driven by moving work offshore and efficiency-led gains. EBIT and PAT to post a 12.9 per cent and 10.6 per cent CAGR, respectively, over FY2015-17E. At current valuations, the stock is attractively valued and hence Angel Broking maintained ‘Buy’ rating on the stock with a price target of Rs 1,132.
Axis Bank (upside 33%): The bank has been reporting robust NII growth, backed by strong retail loan growth, coupled with healthy growth in CASA deposits. Over the past five years, Axis Bank has expanded its branch network at around 21.2 per cent CAGR (around 2,743 branches as of 2QFY2016). In its deposit mix as well, CASA and Retail Term Deposits now comprise a healthy 80 per cent. Retail advances to total advances stands at around 40 per cent as of 2015 against around 20 per cent in FY2011.
Healthy pace of branch expansion and a strong distribution network continue to be the driving force for the bank’s retail business. While the near term asset quality environment remains challenging, the bank will be able to absorb the credit costs given the adequate profitability. Further, given its strong CASA and retail network, the bank is positioned strongly to benefit once the macros revive. The stock currently trades at 1.9x P/ABV FY2017E. Angel Broking recommend a ‘Buy’ rating on the stock with a target price of Rs 630.
Amara Raja Batteries (upside: 15%): Amara Raja Batteries (ARBL) is the second largest lead acid storage battery manufacturer. ARBL has been outpacing market leader Exide (ARBL grew 24 per cent CAGR over FY2010-15 as compared to Exide’s growth of 13 per cent), leading to market share improving from 25 per cent in FY10 to about current 35 per cent . ARBL’s outperformance is mainly due to market share gains in automotive segment driven by introduction of technologically superior products developed with technological support from global battery leader Johnson Controls Inc (which also holds 26 per cent stake in ARBL). With the automotive OEM policy of having multiple vendors and a strong brand recall in the replacement segment, ARBL is well poised to further gain market share.
Given the economic recovery and market share gains, ARBL revenues are likely to grow strongly 18 per cent over the next two years as against industry growth of 10-12 per cent. ARBL is a well diversified auto ancillary player having presence across the automotive and the industrial segment and a broad OEM as well as replacement customer base. Angel Broking believes ARBL is a high quality stock to play the auto sector revival and the share price of the company can touch Rs 1,040.
Inox Wind (upside: 27%): Inox Wind Ltd (IWL) is one of the leading manufacturers of wind turbine generators in India. The company also provides turnkey solutions and operation and maintenance services for wind power projects. The government is laying emphasis on the renewable energy sector and has set an ambitious target of 60GW of installed wind energy capacity by 2022 as against current capacity of 23.5GW, which will generate a huge opportunity for companies like IWL in the upcoming years. Angel Broking expects IWL to report 48 per cent revenue CAGR over FY2015-17, largely supported by strong volume growth of 46 per cent. The stock is currently trading at 12.6x its FY2017E EPS; given the attractive valuation, Angel Broking maintains ‘Buy’ rating on the stock with target price of Rs 505.
(Disclaimer: The stocks are recommended by the respective brokerage house and not a recommendation from Financial Express online)