Microsec has a good reputation as stock pickers. Their stock picks for Diwali 2012 has given investors a return of 12% which compares very favourably against the Nifty returns of 9 percent.
Microsec has now selected 9 stocks as its’ Diwali Picks for 2013. The stocks are fundamentally better placed and reflect the cyclical sectors which it believes are set for an upturn. The investment objective is for a year.
|Company||CMP (29/10/13)||Target Price (1 Yr)||Upside Potential (%)|
Axis Bank Ltd: Target Rs 1,458, upside nearly 20%
Axis Bank is the third largest private sector bank in terms of business and profitability. The banks rapid business expansion along with growing profitability grew at a CAGR of 24 per cent over the period of FY11-13) has helped the bank manage its return ratio better.
In FY13, its Return on Assets (ROA) was at historical high of 1.7 per cent and Return on Equity (ROE) stood at 18.5 per cent despite recent capital infusion of Rs 5,537 crore.
Moreover, it is better placed amongst its top four private peers in terms of high returns. As on H1FY14, ROA and ROE stood at 1.65 per cent and 16.64 per cent, respectively.
Cairn India Ltd: Target price Rs 415, upside nearly 30%
Microsec rating underpins the production ramp up from its Rajasthan field coupled with escalating crude oil prices complimented with depreciating INR versus USD and aggressive capex plans are expected to ensure strong business growth in the future.
Microsec values Cairn on a consolidated basis using EV/EBITDA method and DCF method where it has assigned 75% weightage to the EV/EBITDA methodology considering the kind of business Cairn India is in and 25% weightage to the DCF valuation given the fact of the visibility of future free cash flows.
Moreover the scrip is also inexpensive against its domestic as well as international peers in terms of various valuation parameters.
Exide Industries Ltd: Target price Rs 153, upside 22%
Exide Industries Ltd is a buy because it has excellent distribution network, after sales service, usage of product in different sectors and its R&D and technological framework. However, slowdown in automobile industry impedes the optimism bit.
At the CMP of INR124, Exide is trading at a P/E of 15.5x its FY14E EPS of INR8.0 and 12.3x its FY15E EPS of INR10. Exide has sound business model and ROE of 19.10 per cent.
Microsec has assigned a P/E multiple of 15.3x to its FY15E EPS to arrive at a target price of Rs 153 for a time period of 12-15 months.
GMDC: Target price Rs 133, upside over 26%
Microsec recommends GMDC a buy because it is the largest merchant miner of lignite in India, supplying lignite to various industrial units, including textiles, chemicals, ceramics, bricks, and captive power plants.
GMDC operates five lignite mines in Gujarat. Apart from lignite, it also produces bauxite, fluorspar, and manganese ore and operates a 250 MW lignite-based power plant.
At the CMP of Rs 105 per share, GMDC is trading at EV/EBITDA of 4.16x its TTM EBITDA of Rs 789 crore. At current level, GMDC is trading at EV/EBITDA of 4.09x and 3.40x to its FY14e and FY15e earnings, respectively, which is attractive for a company with 20% expected RoE and debt-free status.
ICICI Bank Ltd: Target price Rs 1204.00, upside over 6%
Microsec rates ICICI Bank Limited a BUY. The Bank was promoted in 1994 by ICICI Ltd, an Indian financial institution. ICICI Bank’s continued focus on balancing growth helped it to strengthen its business size and returns.
It has given more than double return on its behemoth INR6.74 trillion worth of assets within five years. Return on Assets (RoA) of the Bank stood at 1.57% in FY13 as compared to 0.70% in FY09.
At the CMP of Rs 1,075, ICICI Bank is trading at TTM P/BV of 1.70x. The current valuation of 1.59x FY14E and 1.38x FY15E Book Value looks attractive.
Pidilite Industries Ltd: Target price Rs 330, upside over 14%
Microse rates Pidilite Industries a buy. Pidilite, incorporated in 1959, has been a pioneer in the Consumer and Specialities Chemicals in India. Its brand named Fevicol has become synonymous with adhesives to millions in India and is ranked amongst the most trusted brands in India.
At the CMP of INR 265, Pidilite Industries is trading at a P/E of 25.6x its FY14E EPS of INR10.0 and 22.5x its FY15E EPS of INR11.8. With Consistent financial growth, Strong ROE and innovated product line, the prospect of Pidilite Industries looks bright. The Stock has historically traded at a 3Yr average P/E of 28x as per Bloomberg.
Rallis India Ltd: Target price Rs 185, upside over 17%
Rallis, a TATA group company, deals in Agri business & has emerged as one of the leaders in the industry. It has plants located at Akola, Ankaleshwar, Bharuch & Ratnagiri.
Rallis India is currently trading at P/E multiple of 25x times at the current market price of INR 153.85. The TTM EPS of the company is INR 6.12. Microsec expects Rallis to post healthy numbers in the future periods also with above mentioned rationales being fulfilled.
Tata Steel Ltd: Target price Rs 410, upside over 21%
Tata Steel is the world’s sixth-largest steel company with an existing annual crude steel production capacity of ~30MTPA. Post the Corus acquisition; it has diversified business spread across Europe, South East Asia and pacific-rim countries.
With the recent encouraging signs of improving economic conditions in Europe, the UK in particular, the management expects the demand in Europe (where it derives 2/3rd of its 27MT of annual capacity) to recover by the end of FY14e.
At the CMP of INR 326 per share, Tata Steel looks attractive at its forward EV/EBITDA of 6.01x its FY14e EBITDA of INR14,822 crore and EV/EBITDA of 5.44x its FY15e EBITDA of INR17,154 crore.
Tech Mahindra Ltd: Target price Rs 1793, upside over 17%
The integration of Satyam in its operations, depreciation of INR versus USD, and its attractive valuations vis-a-vis peer group make Tech Mahindra a buy.
Tech Mahindra is currently trading at Price-to-Earning (PE) of 15.1x based on its FY2013 earnings compared with average peer group PE of 18.9x. Furthermore, based on FY2014E and FY2015E EPS as well, the company is attractively priced. On FY2015E EPS of INR123.84 and target PE of 14.48x.