The S&P BSE Sensex hit a fresh record high of 31,332.56 while Nifty recorded a fresh lifetime high of 9,673.50 on Friday. The Indian market has already gained over 17 percent so far in the year 2017.
Global brokerage firms such as Citigroup remains bullish on India markets, although with the slightly cautious stance.
Citi India has upped the Sensex target for FY18 to 32,200. Explaining this upgrade, Surendra Goyal, Director and Head of India Equity Research at Citi Research said that Q4 FY17 earnings have come in slightly ahead of estimates, so this change in the target is more of a roll forward.
He is overweight on healthcare, especially in hospitals and midcap pharmaceutical companies. His pecking order for financials is private banks, NBFCs and then public sector banks.
“We are positive on financials in general, bigger overweights are still in the private sector banking, we have buy on a lot of non-banking financial companies (NBFCs) and selective on public sector banks”, he further mentioned.
However, BofA-ML raised its cautious stance on Indian market in the short term. The market is expensive and the breadth of re-rating is extraordinary, Sanjay Mookim of Bank of America Merrill Lynch said in an interview with CNBC-TV18.
He said the market is expensive and the breadth of re-rating is extraordinary.
There is a strong chance the current valuations driven rally turns, Mookim said, adding the brokerage house stayed cautious with a Sensex December 2017 target of 30,000.
It looks like benchmark indices are likely to trade in a range but there will be stock specific action.
We have collated a list of top 10 stocks recommended by different brokerage firms such as CLSA, JPMorgan and Macquarie in separate notes to their clients in separate notes to their clients for an investment period of 1 year:
Maruti Suzuki: BUY| Target Rs 7,400| Upside 4%
Deutsche Bank maintains a buy rating on Maruti Suzuki but raised its 12-months target price to Rs 7400 from Rs 7000 earlier.
Maruti’s overall volumes including both domestic and exports came at 136,534 units, up over 11 percent on a YoY basis. The domestic volumes were at 130,676 units.
Cars grew at 18 percent on a YoY basis while SUV segment grew by 66 percent YoY. However, on a YTD basis, market-share for Maruti is at 51 percent which is higher than FY17 market share of 50 percent.
“Maruti continues to be in a sweet spot from a demand perspective as the products launched in the past 2 years continue to have a waiting period. In addition, this year the company is likely to launch the all-new versions of two of its most successful models (Swift & Dzire),” said Deutsche Bank.
Astral Poly: BUY| Target Rs 685| Upside 13%
CLSA maintains a buy rating on Astral Poly with a 12-months target price of Rs 685. It is one of the top picks in CLSA’s midcap portfolio. Astral reported strong EBITDA/net profit growth of 38%/51% on a year-on-year (YoY) basis in 4QFY17.
The EBITDA margin expanded 286bps YoY led by backwards integration benefits in pipes and operating leverage benefits in adhesives.
“We believe the competitive advantage of manufacturing its own CPVC compound and scale up in the adhesives business will lead to a robust 33 percent earnings per share (EPS) CAGR over FY17-19,” said the CLSA note.
Max Financial: BUY| Target Rs 700| Upside 13%
CLSA maintains a buy recommendation on Max Financial but raised its 12-month target price to Rs 700 from Rs 680 earlier. FY17 was a good year for Max Life Insurance with 27 percent growth in premiums, healthy value of new business (VNB) margins of 18 percent and return on enterprise value (ROEV) of 20 percent.
Demonetisation helped premium growth and better product mix as well as persistency ratio aided margins. As per management, a tie-up with Axis Bank (58% of premium) will stay until 2021 and management is committed to consummate the merger with HDFC Life; clarity on regulatory approvals will be key.
Prestige Estates: BUY| Target 318| Upside 28%
CLSA maintains a buy rating on Prestige Estates with a 12-months target price of Rs 318. The company recorded 52 percent QoQ improvement in pre-sales and 22 percent QoQ growth in customer collections show that it has recovered from the demonetisation lows.
After sales missing targets for two consecutive years, declining 25 percent on a YoY basis in FY17, management has guided for over 40 percent growth in FY18.
“While presales growth may run the risk of new launch revivals, we are much more sanguine on the lease income growth target of 20% YoY, despite recent job slowdown worries,” said the CLSA note.
Apollo Hospitals (AHEL): Overweight| Target Rs1537| Upside 23%
Morgan Stanley maintains an overweight rating on Apollo Hospitals with a 12-month target price of Rs1537. Apollo Hospitals targets 7 percent volume growth and 4-5 percent improvement in average revenue per occupied bed (ARPOB) (pricing and case mix), which together should translate into 12 percent rise in health-care services revenue (55% of the total sales).
“We expect SAP (stand-alone pharmacies; 45% of overall sales) to grow faster driven by new stores, volumes and value. AHEL is planning to take price increases in line with inflation (4-5%) across its network in F2Q18,” said the note.
Fortis Healthcare: Outperform| Target Rs270| Upside 38%
Macquarie maintains an overweight rating on Fortis Healthcare with a 12-month target price of Rs270 even though the March quarter results were marginally lower than Morgan Stanley’s estimates.
The company remains buoyant about its FY18 growth and margin outlook, with the situation having largely normalised by now. With improving efficiencies in FEHI and SRL, FORH is well poised to deliver profitable growth.
“We think current levels provide an attractive entry opportunity with a 12-month view on the name. We believe a demerger and separate listing of SRL could help unlock significant value for Fortis shareholders,” said the Macquarie note.
Hindalco Industries: Outperform| Target Rs250| Upside 27%
Macquarie maintains an Outperform rating on Hindalco Industries with a 12-month target price of Rs250.
Management has maintained its low CapEx focus with FY18E CapEx guidance of Rs10bn. With $500mn QIP in 4Q17 and free cash generation, Hindalco has reduced its net debt by 20 percent on a YoY basis in FY17. The management remains focused on deleveraging and plans to spend only towards only low capital intensity projects.
“Our commodity team expects aluminium prices to remain strong and we forecast mid-teens FCF yield to further strengthen the balance sheet,” said the Macquarie report.
Mahindra & Mahindra (M&M): Overweight| Target Rs 1600| Upside 12%
JPMorgan maintains an Overweight rating on M&M with a 12-month target price of Rs 1,600. M&M’s farm equipment market had a good year with Revenues/EBIT growing 23%/31%, respectively.
Market share at 42.7 percent and margins at 17 percent are at multi-year high levels. F17 growth was aided by lower base over F16/15 and pent up demand.
New product introductions/better distribution helped market share improvement. Jivo range of tractors targeting horticulture application has just been launched. “For F18 as well the company hopes that the industry will deliver double-digit volume growth aided by a normal monsoon,” said the JPMorgan report.
Aurobindo Pharma: Overweight| Target Rs 800| Upside 35%
JPMorgan maintains an Overweight rating on Aurobindo Pharma with a 12-months target price of Rs 800. Europe sales were muted in the quarter (flat on constant currency) but continued to improve profitability.
However, Aurobindo remains confident of improving growth to 5-8 percent in the existing business aided by new launches and increasing supplies from the newly commissioned facility for Europe (transferred 69 products to India and commissioning of Unit 15 in Mar). This should be augmented by the recently concluded Generis acquisition (around 70 million euro annually).
“Gross margin expansion in an existing business (from production in India), integration of Generis (~20+% margin) and expected synergies from the deal should improve profitability,” said the report.
Britannia Industries: BUY| Target Rs 3,950| Upside 8%
Citigroup maintains a buy rating on Britannia Industries but raised its 12-month target price to Rs 3,950 from Rs3700 earlier. Britannia continues to execute, a) distribution/penetration strategies, b) product initiatives, and, c) cost management drive which ensures it to deliver outsized growth in a tough market.
The near-term volatility post demonetisation and GST transition aside, it remains one of the best plays in India's packaged foods market. “We estimate 11% / 18% revenue / EPS CAGR over FY17-19E. The management expects the market to pick up in next 3-6 months with which competitive intensity could also ease,” said the Citi report.
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