Why Coal India, SBI are among 5 top stocks to pick post Q2 results

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Updated: November 23, 2015 11:36:35 AM

For the quarter, benchmark index BSE Sensex skid 5.85 per cent to 26154.83 on September 30. The index was at 27780.83 on June 30. The broad-based NSE Nifty slid 3.61 per cent during the same period.

Stocks to bet upon post q2 earningsFor the quarter, benchmark index BSE Sensex skid 5.85 per cent to 26154.83 on September 30. The index was at 27780.83 on June 30. The broad-based NSE Nifty slid 3.61 per cent during the same period. (Photo: Reuters)

The performance of India Inc for the period ended September 2015 has been muted once again with growth in net sales being negative for the fourth successive quarter while net profit growth has been marginally higher than June quarter but lower than September 2014, says Care Ratings.

Net sales of Indian companies fall 5.9 per cent for the quarter ended September 2015 as against growth of 7 per cent in the same period of last year. On the other hand, net profit of India Inc jumped 4.1 per cent against 12.6 per cent growth registered in the corresponding quarter last year. The negative growth in net sales is largely attributed to weakness in demand and pricing power. Despite negative producer’s inflation as measured by the WPI signalling lower raw material cost.

For the quarter, benchmark index BSE Sensex skid 5.85 per cent to 26154.83 on September 30. The index was at 27780.83 on June 30. The broad-based NSE Nifty slid 3.61 per cent during the same period.

Below are 5 stocks on which brokerage houses are looking bullish post their second quarter(Q2) earnings.

Aurobindo Pharma
Recommended By: IndiaNivesh Securities
Target Price: Rs 980
Market Price*: Rs 817.35
Why Buy: Aurobindo Pharma has cumulative filing of 382 ANDAs at the end of 2QFY16. The cumulative ANDAs pending for approval stands at 168, which has good mix of complex molecules which would enable not only enhanced sales growth but also improved profitability for sustained period. The upside in earnings is subject to regulatory approval. The company has around 51 products pending for approval in injectables space and 16 products in controlled substance space. According to IndiaNivesh Securities, Aurobindo’s R&D effort towards peptides, microspheres as well as hormones would also deliver better growth over 3-5 year period. The faster turnaround of acquired Actavis operation in Europe would also help in further improvement in overall margins of the company. ARBP has maintained its guidance of shifting 50 per cent of Actavis products to India facility by FY17. The brokerage house expects the second half of the ongoing financial year (2HFY16) will be better than the first half (1HFY16) on the back of increased business from approved products as well as new approvals expected in 2HFY16.

Coal India
Recommended By: IndiaNivesh Securities
Target Price: Rs 467
Market Price*: Rs 333.75
Why Buy: After a couple of years of stagnant production levels in the past, Coal India (CIL) finally delivered strong performance in FY15. Production and offtake jumped by 9.2 per cent and 9.9 per cent respectively in 7MFY16 on the back of a concerted push by the government. The government has set a gross output target of one billion tonnes of coal by 2019-20, which is around double the current production. In near term the company has guided 12 per cent off take volume growth to 550 MT and 11 per cent production volume growth to 550 MT in FY16. However, IndiaNivesh forecast FY16 production at 529 MT (+7% YoY); off-take 523 MT (+7%). The company has a strong balance sheet, with cash equivalents of Rs 61,800 crore (Rs 98/share) at end of H1FY16. The company has dividend payout ratio of near 100 per cent in previous two years. The brokerage house believes the dividend payout will remain healthy. According to IndiaNivesh, Coal India is likely to show strong performance in medium to long term (expect CAGR production growth of 7 per cent in next five years) due to strong domestic coal demand and monopoly in coal production in India.

State Bank of India
Recommended By: IndiaNivesh Securities
Target Price: Rs 370
Market Price: Rs 243.85
Why Buy: SBI, being the largest bank in Indian banking sector, remains the biggest beneficiary of revival in economy by way of pick up in loan growth and improvement in asset quality. In Q2FY16, loan growth of SBI picked to 10.3 per cent year-on-year (yoy) from 7 per cent yoy in Q1FY16. The brokerage house believes, the bank can easily grow its loan book at 13 per cent CAGR over FY15-17E with upward bias if corporate capex picks up significantly. With market leadership positioning in Home and Auto loan segment, growth in retail for SBI continues to remain higher.

Triveni Turbines
Recommended By: Sharekhan
Target Price: Rs 135
Market price*: Rs 112.05
Why Buy: For Q2FY2016, Triveni Turbines reported a 14 per cent yoy growth in revenue led by a strong 21 per cent growth in product sales. The aftermarket segment has reported a marginal fall in revenue mainly due to unfavourable base effect. Lower raw material cost led to a 110 basis points improvement in operating profit margin to 23.5 per cent, highest in the past ten quarters. Overall, the net profit rose by 16 per cent to Rs 27.7 crore.
Sharekhan in a research note said, “We have downgraded our earnings estimates for FY2016 and FY2017 by 7 per cent and 11 per cent respectively mainly in view of slow order booking in its JV with GE. We expect net profit to double (CAGR of 26 per cent) in three years, FY2015-18. We like the stock for its strong competitive positioning, international marketing efforts, margin profile and healthy balance sheet (it is a debt-free company with superior return ratios). Any major order win in the GE JV in the near term would be a positive trigger for the stock.”

CESC
Recommended By: Sharekhan
Target Price: Rs 730
Market Price*: Rs 540
Why Buy: For Q2FY2016, CESC reported substantially better earnings than estimated. The revenue was in line with estimates but on account of lower other expenses, the operating profit as well as net earnings were better than estimates. During the period, power generation was lower by 20 per cent YoY as it was compensated by sourcing power from its newly commissioned Haldia power plant (under subsidiary). The power sold remained flat yoy and revenue grew by 7 per cent yoy with better tariff. The operating profit registered a 5 per cent growth but on account of higher interest cost, PAT was flat (2 per cent up yoy) at Rs 195 crore, which was substantially better than estimate.

According to Sharekhan, the negatives related to the loss in the Chandrapur plant and potential under recovery as a result of aggressive bidding for coal mines have been already priced in the stock. Nevertheless, the company continues to put efforts to cover the under recovery from exporting some power in exchange and get PPA linkage for the new plant. The drag related to retail subsidiaries is receding though slower than initially expected. Overall, the financials of FSL should improve. The brokerage house has ‘Buy’ retainin on CESC shares.

* Market price as on November 19.

(Disclaimer: The stocks are recommended by the respective brokerage houses and not a recommendation from Financial Express online)

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