Stock markets are currently hovering around all-time highs. While equities are likely to continue outperforming other asset classes, it is time to be stock-specific and focus on segments which still present a favourable risk-reward paradigm. So far as the economy is concerned, while there would be some pain and worries in the near term, the long-term story looks more exciting than perhaps ever before. More than anything else, the process of formalisation of the economy unleashed by demonetisation and the GST will result in a phenomenal growth of the corporate sector in the years to come. Also, with the inflation firmly in control and crude prices remaining low, India is currently witnessing a period of low interest rate regime. According to market experts, there has never been a better time in India to invest in the market than it is now, provided you select your stocks carefully. Here we are taking a look at 10 stocks which may give better returns in the long term:
1. Dewan Housing Finance
CMP: Rs. 666
Target Price: Rs 762
The entire economy looks poised to stimulate growth in the next few years due to the availability of affordable housing, adding 2-3% to the overall GDP. DHFL’s loan book is expected to report a 23% growth over the next few years due to healthy capital adequacy and an increasing demand for home loans. DHFL sold 50% stake held by it in DFHFL Pramerica Life Insurance Co Ltd which added Rs 1,969 cr to its net worth and increased its CAR by 400 bps, to 19.3% which should fuel growth for the next 2-3 years. “They have managed to maintain a stable asset quality so far and we expect the trend to continue due to strong NIM on the back of lower cost of funds. The earnings’ growth is likely to be around 28% within the next two years. We maintain Buy with a target price of Rs 762, valuing the stock at 2.2x FY2019E ABV,” says Amarjeet Maurya, Sr. Equity Research Analyst, Angel Broking Pvt Ltd.
2. Karus Vysa Bank
CMP: Rs. 127
Target Price: Rs 161
FY2017 was a year of consolidation of KVB since their loan book grew by only 4.7% despite having a fairly strong CAGR of 14.9% over the FY11-17. However, their book is expected to improve with deposit growth poised to grow by 9% during the next two years. The outlook for Q1FY2018 seems to put some pressure on asset quality, but it will still remain fairly under control. There were 25 bps improvements in NIM during FY17, with share of CASA growing and cost of fund coming down NIM is expected to improve further going ahead. KVB is predicted to post a good growth on earnings CAGR at 22% over FY2017-2019. Angel Broking maintains its Buy reco with a target price of Rs 161, valuing the stock at 1.4x FY2019E ABV.
3. Asian Granito
CMP: Rs 495
Target Price: Rs 572
Even though AGIL’s current vitrified sales (35%) are lower than compared with its competitors like Somany Ceramics (47%) and Kajaria Ceramics (61%), AGIL’s profit margin is expected to improve due to increase in focus for higher vitrified product sales and the launch of various products in the premium segment. “Going forward, the company may improve its operating margin from 7.5% in FY16 (excluding merger) to 12-12.5% in the coming financial year. AGIL is likely report a net revenue CAGR of 8.5% to Rs 1,286cr and net profit CAGR of 23% to Rs 59 cr over FY2017-19E. We maintain a Buy reco with a target price of Rs 572,” says Maurya.
4. Blue Star
Target Price: 867
Despite a mere 3% penetration of ACs in India, the overall outlook for the Room Air Conditioner (RAC) market in India is favourable and BSL is one of the largest players. BSL’s RAC business has been outgrowing the industry by 10% points over the last few quarters, resulting in the company consistently increasing its market share. With strong brand equity and higher share in split ACs, we expect the CPD to continue to drive growth. Aided by increasing contribution from the Unitary Products, Angel Broking expects the overall top-line to post a revenue CAGR of 19% over FY2017-19E and margins to improve from 5.8% in FY2017 to 6.6% in FY2019E. It maintains its Buy reco with a target price of Rs 867.
5. TV Today Network
Target Price: 435
TTNL enjoys a strong viewership ranking in the Hindi and English news channel categories. The company’s Hindi news channel – Aaj Tak – has maintained its market leadership position. Its English news channel – India Today too has been continuously gaining viewership. “TTNL is a play of higher operating leverage that would be visible as advertisement revenues gain traction. Going ahead, we expect EBITDA margins would improve. We expect TTNL to report a net revenue CAGR of 9% to Rs 727cr and net profit CAGR of 14% to Rs 121cr over FY2017-19E. We have a buy rating on the stock,” says Maurya.
6. Music Broadcast
Target Price: 434
It has grabbed the Number 1 position in Mumbai, Bengaluru and Delhi in terms of the number of listener. This is helping MBL to charge premium rate, which is resulting into higher EBITDA margin (33.6%) compared to 22% of ENIL. On the profitability front too, MBL grew at 32.3% CAGR over FY2013-17, which is way above ENIL. Angel Broking has a Buy recommendation on the stock with a target price of Rs 434.
7. KEI Industries
Target Price: 371
KEI’s current order book (OB) stands at Rs 2,780cr (segmental break-up: Rs 1,990cr in EPC, Rs 560cr in Cable & Rs 230cr in EHV). Its OB grew by 28% in the last 3 years due to strong order inflows from State Electricity Boards, Power grid, etc. KEI’s consistent effort to increase its retail business from 30-32% of revenue in FY17 to 40-45% of revenue in the next 2-3 years on the back of strengthening distribution network and higher ad spend. KEI’s export (FY17 – 8-10% of revenue) is expected to reach a level of 14- 15% in next two years with higher order execution from current OB and participation in various international tenders. We expect a strong 26% growth CAGR over FY2017-19 in exports. We expect KEI to report net revenue CAGR of 14% to Rs 3,392cr and net profit CAGR of 13% to Rs 125cr over FY2017-19. Hence we have a Buy rating on the stock.
8. GIC Housing Finance
Target Price: 655
Backed by the new management, GICHF is aiming for 2.0x growth in the loan book over the period of FY16-FY19E to Rs 16,000cr. GICHF has healthy capital adequacy, and is seeing an increase in demand for home loans. “GICHF’s loan book is expected to report 24.3% loan growth over next two years. We expect GICHF’s loan growth to grow at a CAGR of 24.3% over next two years and RoA/RoE to improve from 1.7%/19.0% in FY17 to 2.0%/23.0% in FY19. The stock is currently trading at 2.2x FY2019E ABV and we have a Buy rating on the stock,” says Maurya.
Target Price: 265
NCL is one of the largest and one of the three CFS at JNPT with rail connectivity, helping it garner high market share at the port. It is in a massive expansion mode where it is increasing its capacity by 234% to 1,036,889 TEUs at JNPT and is coming up with an ICD at Vapi (with Logistics Park). The ICD with rail link should benefit from first mover advantage in a region that has huge market potential and accounts for 27% of volumes at JNPT. Angel Broking expects NCL to successfully use its rail advantage and scale up its utilizations at both JNPT and Vapi ICD. It has a Buy rating on the stock.
10. LT Foods
Target Price: 96
LT Foods LTD (LTFL) is a branded specialty foods company engaged in milling, processing and marketing of branded and non-branded basmati rice and manufacturing of rice food products in the domestic and overseas markets. LTFL’s flagship brand Daawat enjoys 22% market share in the branded rice market of India. “The company also has strong market share in North America selling Basmati rice under the brand name ‘Royal’. The company is at present in segments like Basmati rice, Specialty rice (non-Basmati) and other food products. Overall outlook remains strong with 14% CAGR in the top-line and 20% CAGR in the bottom-line. We recommend a Buy on the stock with a target price of Rs 96 (15x FY2019E EPS),” says Maurya.
(Disclaimer: These stock recommendations have been made by Angel Broking Pvt Ltd. Although due care has been taken by them while making these recommendations, investors are advised to consult their financial advisors before investing in any stock based on these recommendations.)