Emkay has released a list of 15 “high conviction” stocks that you must buy
Cadila Healthcare: We expect Cadila to report 18% revenue growth in FY13 and 15% growth in FY14. We expect EBIDTA margins to move from 20.6% in FY12 to 21.3% in FY13 and 21.5% in FY14. Earnings will grow by 16% CAGR over FY12-14E. We value the company at 18x FY14 EPS with a target price of Rs850 and positive bias.
HDFC Bank: We expect bank to report 24% CAGR in NII / customer assets over FY12- 14E. Healthy non-interest income and lower credit cost requirement would aid to higher 30% CAGR in APAT. Intense competition in savings deposit space remain key catalyst. Maintain positive bias.
ICICI Bank: We expect the bank to witness 17% CAGR in NII / customer assets each over FY12-14E. Improvement in margins with easing credit cost pressures would aid RoA performance. Any material spike in restructured loan portfolio remains key risk in near term. Maintain positive bias.
Infosys: Valuations at ~14.3x/13.3x FY13/14E P/E and 4%+ FCF yield make us keep the faith despite recent misses and Infosys having lost it’s bellwether status to TCS. A 20% relative discount more than captures the relative underperformance in our view. We believe an inline/better Q1FY12 show will drive confidence to the street ahead.
Ranbaxy Labs: We expect Ranbaxy to report 27% growth in base business revenue in CY12E and 17% in CY13E. Base EBIDTA margins are expected to increase from 8.2% in CY11to 12.5% in CY12E & 14.1% in CY13E. Base Earnings are expected to register 9% CAGR over CY11-13E to Rs11.4bn clocking an EPS of Rs27 in CY13E. We value the base business at Rs543 (20x CY13E base EPS of Rs27 and NPV of Rs16). Maintain positive bias.
Reliance Power: Mid-term triggers – a) COD of 4,260MW by Dec’12 (incl. 1 unit of Sasan), b) coal production in Sasan 2Q13 and c) production start in Indonesian mines (3Q13). Value of base case projects (Rosa, Butibori, Sasan and Indonesian mines) plus net cash is about Rs85/Share. We foresee RPL as the most sustainable private utility. Have positive bias with Fair value of Rs155/Share.
Tata Motors : Expect earnings performance at 14.7% CAGR in FY12-FY14E period aided by strong volumes in JLR and FCF generation. Emkay’s earnings forecast are Rs 47/share and Rs 51.5/share for FY13E and FY14E respectively. Attractive valuations at EV/EBIDTA of 3.4x/2.9x FY13/14E.
Allahabad Bank: We expect bank to report 17%/14% CAGR in customer assets / profits over FY12-14E. A lower than expected recovery rate, higher slippages in restructured loan portfolio and margin pressures remain key near term catalyst for stock performance.
CRISIL: Earnings performance at 30% CAGR in CY11-CY13E period led by continued traction in BLR and strong growth in research (aided by recent acquisitions- Pipal & Coalition)). Emkay’s earnings forecast are Rs40.2/share and Rs 49.4/share for CY12E and CY13E respectively. With more than 55%/ 108% RoE/ RoIC, valuations attractive at PER of 23.9x CY13E.
Dish TV: Incremental subscriber addition from digitalization with stable churn rate and ARPU improvement are near positives for the stock. We estimate net loss would reduce to Rs250mn in FY13E from Rs1.3bn in FY12 and finally it would turn profitable in FY14E. Maintain positive bias on the stock with DCF based target price of Rs66.
Divis Lab: Divi’s continues to maintain strong performance in the CRAMS space visà- vis its peers in terms of best-in-class operating metrics. We expect Divi’s to report 23% growth in revenues in FY13E and 21% in FY14E. EBIDTA margins are expected to move from 37% in FY12 to 35% in FY13E and 36% in FY14E. Earnings will grow by 21% CAGR over FY12-14E. Maintain positive bias with a target price of Rs1033.
Havells India: Consolidated earnings growth at 18% CAGR in FY12-FY14E period aided by distribution led revenue growth and improving profitability in Sylvania is near-term catalyst. New product introduction, market share gains to additionally drive growth in domestic business, while Sylvania business becoming self sustainable with cash flow generation. Emkay’s earnings forecast are Rs 34.8/share and Rs 41.5/share for FY13E and FY14E respectively. Valuations at PER of 13.6x FY14E and EV/EBIDTA of 7.9x FY14E EBIDTA.
Marico: Gross margin expansion in Q4FY12 is likely to extend into ensuing quarters, considering steep fall in Copra prices. Hence, expect strong earnings growth in near term. Forecast earnings CAGR of 27% in FY12-14E period (also, being front loaded). Earnings forecasts of Rs7.1/Share and Rs8.3/Share for FY13E and FY14E.
MindTree: We continue to see upside risks to street’s earnings estimates (our earnings estimates are 10%/14% higher than consensus) and expect June’12 results to provide more confidence to this thesis.
Petronet LNG: We expect volume growth would sustain in the coming years, as domestic natural gas supply continues to fall short to meet the growing demand. Thus ensuring comfortable ROE of 23%+ going forward. However current valuation captures marketing margin concerns and hence offers attractive valuations at 9.5x FY14E EPS.
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