Bajaj Corp: Target price Rs 303
Bajaj Corp is the third largest player in the hair oil segment and has emerged as the dominant player in the premium light hair oil (LHO) category with its Almond Drops hair oil.
With consumers upgrading to the LHO category, Sharekhan expects the strong volume growth momentum to continue in the coming quarters. With the prices of the key inputs stabilising, it expects the GPM to improve in the coming quarters.
Any initiative to expand its limited product portfolio or strengthen its core business would be a key upside trigger for the stock. Currently the stock is trading at 18.6x FY2014E EPS of Rs13.3 and 14.2x FY2015E EPS of Rs17.5.
Bharti Airtel Ltd: Target price Rs 395
The Indian telecom environment is turning favourable with a drop in the competitive intensity and the benefits of consolidation flowing to the incumbent players, as visible in the financial results of the players for the past two quarters.
The Q1FY2014 results of the Indian business of Bharti Airtel exhibited a strong pricing power (+4% QoQ), with a robust data revenue growth, aided by a 190-basis-point sequential margin expansion in the India mobile business.
In the wake of the improving business fundamentals, relatively less harsh regulatory moves, and the impending mergers and acquisitions in the sector, Sharekhan maintains their positive stance on Bharti Airtel, with a revised price target of Rs395 (valued at 7.5x FY2015 EV/EBITDA).
Divi’s Laboratories Ltd: Target price Rs 1231
Despite a weaker performance in Q4FY2013, Sharekhan is confident of Divi’s Laboratories’ growth potential. Its recent performance was affected by the expansion process and the switching of production to new facilities which partly disrupted supplies. The growth will bounce back on normalisation of supplies by the end of Q1FY2014.
It will benefit from the rupee’s depreciation against major other currencies, thanks to its debt-free balance sheet and the fact that nearly 90% of its revenues come from the export market (mainly the USA and Europe).
The stock is currently trading at 19.3x and 15.2x estimated earnings for FY2014 and FY2015 respectively. Sharekhan has a ‘Buy’ recommendation on the stock with a price target of Rs1,231, which implies 19x FY2015E earnings.
HCL Technologies Ltd: Target price Rs 1187
HCL Technologies is an IT services company providing software-led IT solutions, remote infrastructure management services and BPO services. The company has a leading position in remote infrastructure management services which has helped it win large IT outsourcing contracts. Through the Axon PLC acquisition, the company has gained a strong SAP consulting footing.
In the current environment, Sharekhan believes HCL Tech is well placed in terms of its business strategy of consciously targeting the re-bid market. The results of the same are evident in its consistent outperformance in terms of volume and revenue growth. The company has allayed the apprehensions on the margin front by consistently improving its margins despite head winds.
In view of its better earnings predictability compared with peers, stable margins and sustainable momentum in the IMS vertical, Sharekhan recommends a Buy on it with a price target of Rs1,187.
HDFC Bank: Target Rs 712
HDFC Bank is expected to continue its strong growth in advances due to a strong presence in the retail segment. While the credit demand has moderated in the corporate segment, it has a strong presence in the retail segment which will benefit the bank.
Sharekhan expects HDFC Bank to deliver earnings CAGR of 25.2% over FY2013-15 leading to RoE and RoA of 22.6% and 1.9% respectively. Sharekhan believes the bank will continue to command a premium over its peers due to a strong and consistent growth. Sharekhan puts a price target of Rs712 for the stock.
ICICI Bank Ltd: Target price Rs 1195
ICICI Bank continues to report strong growth in earnings led by a growth in advances and expansion in margins (2.9% in FY2013). Sharekhan expect its advances to grow at 17.6% CAGR over FY2013-15. This should lead to a 17.1% CAGR growth in the net interest income (NII) in the same period.
ICICI Bank’s asset quality remains stable as its non-performing assets (NPAs) have declined in the past several quarters led by a contraction in slippages. This has led to a sharp reduction in the provisions and an increase in the profitability. Going forward, Sharekhan expects the asset quality pressures to be within the manageable limits leading to a healthy the profit growth.
The stock trades at 1.2x FY2015E BV. Moreover, given the improvement in the profitability led by lower NPA provisions, a healthy growth in the core income and improved operating metrics, Sharekhan recommends Buy with a price target of Rs1,195.
L&T Ltd: Target price Rs 1075
Larsen & Toubro (L&T), the largest engineering and construction company in India, is a direct beneficiary of the strong domestic infrastructure development and industrial capex boom.
Sharekhan is impressed by L&T’s good execution skills, reporting decent numbers throughout despite the slowdown in the industrial capex cycle. Sharekhan also states that order inflow traction has been seen in recent quarters which enhances the revenue visibility.
At the CMP, the stock is trading at 11.1x its FY2015E earnings.
Reliance Industries Ltd: Target price Rs 1010
Reliance Industries Ltd (RIL) has a strong presence in the refining, petrochemical and upstream exploration businesses. The refining division of the company is the highest contributor to the company’s earnings and is operating efficiently with a better gross refining margin (GRM) compared with its peers in the domestic market due to the ability of its plant to refine more of heavier crude.
However, the gas production from the KrishnaGodavari-D6 field has fallen significantly in the past one year. With the government approval for additional capex, we believe production will improve going ahead.
The key concerns remain in terms of a lower than expected GRM, profitability of the petrochemical division and the company’s inability to address the issue of falling gas output in the near term.
At the CMP the stock is trading at a PE of 11.5x its FY2015E EPS.
Sun Pharma Ltd: Target price Rs 595
The combination of Sun Pharma, Taro Pharma, Dusa Pharma and the generic business of URL Pharma offer an excellent business model for Sun Pharma, as has been reflected in the 40% Y-o-Y revenue growth and 39% Y-o-Y profit growth in FY2013.
Though a $550-million provision related to Protonix case would erode the cash balance by 55% in FY2014, but the brokerage firm believes that Sun Pharma is in a comfortable cash position. The rupee’s depreciation against the dollar is set to positively affect Sun Pharma.
At the CMP, Sun Pharma is trading at 24.9x and 22.7x FY2014E EPS and FY2015E EPS respectively. Sharekhan maintains their Buy recommendation on the stock, with a price target of Rs 595 (post bonus shares), which implies 26x FY2015E EPS.
Tata Consultancy Services Ltd
TCS pioneered the IT services outsourcing business from India and is the largest IT service firm in the country. It is a leader in most service offerings and has further consolidated its position as a full service player by delivering a robust financial and operational performance consistently in the last two years.
The consistency and predictability of the earnings performance has put the company in the top of its league. Moreover, the quality of its performance has also been quite impressive, ie. it has been able to report a broadbased growth in all its service lines, geographies and verticals consistently over the past two years, thereby justifying its position as a full service player in the IT industry.
At the current market price of Rs2,030. the stock is trading at 23.7x FY2014 EPS of Rs85.6 and 21x FY2015 EPS of Rs96.5.
ZEE Entertainment Ltd: Target price Rs 300
Among the key stakeholders of the domestic TV industry, the brokerage firm expects the broadcasters to be the prime beneficiary of the mandatory digitisation process initiated by the government. The broadcasters would benefit from higher subscription revenues at the least incremental capex as the subscriber declaration improves in the cable industry.
ZEEL’s management acknowledged that the recent TRAI recommendation of capping the advertisement time at 12 minutes per hour would have an adverse impact on its advertisement volume. The company will take adequate hikes in the advertisement rates in order to negate the impact of reduced volumes.
Sharekhan believes that ZEEL will be the major beneficiary of the digitisation process in the years to come which coupled with a strong balance sheet and high return ratios makes it a compelling long-term growth story.
Sharekhan maintains their ‘Buy’ rating on ZEEL with a price target of Rs300.