RBL Bank is likely to see improving return profile over the next couple of years, due to improving advances & loan mix, higher CASA, lower cost ratios and improving asset quality
The market is continuing to correct and consolidate after hitting record highs last week dragged by concerns like weak rupee and higher crude prices, which may impact the country's current account deficit and economic growth.
The Nifty has so farlost more than 200 points and the Sensex around 700 points from their record highs of 11,760.20 and 38,989.65, respectively, hit on August 29.
Experts suggest that the correction was due as the indices had rallied more than 10 percent year-to-date.
Crude oil prices have rallied nearly 23 percent year-to-date to USD 79 a barrel since August 15, while Indian rupee has fallen nearly 12 percent year-to-date against the US dollar.
“The ongoing depreciation has room till 73, but the journey till there is less likely to be steep because of the ongoing trade war tensions, and a higher likelihood of only a gradual US rate hike will ensure that we may not have any runaway rally in US dollar or weakness in rupee,” Anand James Chief Market Strategist at Geojit Financial Services told
Brokerage: IIFL
RBL Bank: Buy | Target: Rs 739 | Return: 18%
RBL Bank (one of the fastest growing private banks) is likely to see improving return profile over the next couple of years, due to improving advances & loan mix, higher CASA, lower cost ratios and improving asset quality.
We expect the bank to report industry-leading loan CAGR of around 31.5 percent over FY18-20E. We forecast revenue and PAT CAGR of 27.5 percent and 36.8 percent, respectively, over FY18-20E.
We forecast return on assets (RoA) and return on equity (RoE) will increase by 24 bps and 317 bps to 1.4 percent and 14.6 percent, respectively, over FY18-20E. Considering the multiple levers, we value the stock at 3.6x FY20E P/ABV to arrive at the 12-months target price of Rs 739.
Karur Vysya Bank: Buy | Target: Rs 116 | Return: 24%
Karur Vysya Bank will benefit from its digital banking initiative, asset quality improvement, and advances growth. Further, improving loan mix, higher CASA, lower cost ratios to also support its return profile.
We forecast its RoA & RoE to increase by 48bps and 540bps to 1 percent and 11.5 percent, respectively, over FY18-20E. KVB is currently trading at around 1.5x FY20E P/ABV, which is attractive from a risk-reward point of view.
Reduction in stressed asset formation and improvement in core profitability would drive re-rating of the stock. We forecast its revenue and profit to register 14.1 percent and 50.9 percent CAGR over FY18-20E, respectively.
Considering the multiple levers, we value the bank at 1.8x FY20E P/ABV, to arrive at the 12-month target price of Rs 116.
City Union Bank: Buy | Target: Rs 235 | Return: 20%
City Union Bank will benefit from its increasing loan book led by better traction in MSME and retail loan book segments. Its focus on lower slippages and higher recovery will lead to declining credit cost over the next couple of years.
In addition, focus on high yielding products, higher CASA & CD ratio and lower cost ratios to also support its return profile.
We forecast its RoA & RoE to increase by 7bps and 13bps to 1.64 percent and 15.4 percent respectively over FY18-20E. Considering multiple levers, we assign 2.8x on FY20E P/ABV to arrive at target price of Rs 235.
Kalpataru Power Transmission: Buy | Target: Rs 451 | Return: 23%
KPT's order book at Rs 13,700 crore and L1 status in Rs 2,340 crore order provides strong revenue visibility (over 2 years) in standalone business.
Traction in international transmission & distribution (Bangladesh, Sri Lanka etc) and railways (Africa & CIS regions) will lead to sales / PAT CAGR of 15.5 percent / 18.5 percent over FY18-20E.
We value standalone EPC business at RS 384 per share; BOOT assets at 1xBV at Rs 14 per share; JMC at Rs 39 per share; SSLL at Rs 2 per share, 30 percent holding company discount on each and Rs 12 per share for real estate business. We recommend Buy with a SOTP based target price of Rs 451 per share.
Prabhat Dairy: Buy | Target: Rs 195 | Return: 25%
Prabhat Dairy is a Maharashtra based private dairy company (milk processing capacity of 1.1 million litres per day, around 70 percent direct sourcing) with a strong B2B presence. It sells fresh cow milk and value added products under its flagship brand Prabhat and Volup (icecream).
Prabhat is targeting to expand its reach to 0.2 million retail outlets by FY20 (0.1 million in FY18) driving strong growth in B2C business from a low base and increase the segment's sales contribution to 50 percent from the current 30 percent, in the next 2-3 years.
We estimate revenue and PAT CAGR of 12 percent and 32 percent respectively over FY18-20E owing to its strong B2B presence, increasing share of B2C business, and margin improvement (led by operating leverage). We recommend Buy with target price of Rs 195.
Eveready Industries: Buy | Target: Rs 22% | Return: 22%
Eveready's revenue mix is shifting from batteries & flashlights (82 percent of revenues in FY14 to 64 percent in FY18; 58 percent in FY20E) towards lighting and appliances (12 percent in FY14 to 31 percent in FY18; 34 percent in FY20E).
Entry into confectionaries will add Rs 70 crore to cumulative topline over FY18-20E.
Implementation of BIS compliance for dry cell batteries starting October 2018 will reduce dumping of cheap Chinese batteries, pushing volumes for domestic companies.
Eveready has around Rs 100 crore worth of land bank which can be monetised to either pay off long term debt (Rs 120 crore) or take care of other contingencies, if any.
We expect company to post consolidated sales and PAT CAGR of 11 percent and 52 percent respectively over FY18-20E (PAT CAGR is optically high due to 43 percent drop in FY18 PAT).
Abbott India: Buy | Target: Rs 9,639 | Return: 15%
Abbott's branded business and 21 product launches led to revenue growth of 13.6 percent YoY in FY18 versus Indian pharma industry growth of 5.2 percent. Abbott expects to introduce 100+ products over next five years which is expected to provide further growth opportunities.
Due to the stable branded business and cash rich balance sheet, company enjoys ROE of 20 percent plus and ROIC of 50 percent plus. We expect revenue / PAT CAGR of 16 percent / 21 percent over FY18-20E. We recommend Buy on Abbott India with target price of Rs 9,639.
Sanofi India: Buy | Target: Rs 7,446 | Return: 14%
Sanofi has brands like Lantus, Combiflam, Amaryl and Allegra which feature amongst the top 100 brands in Indian pharma industry. Sanofi's insulin portfolio has been growing in double digits due to growth in its diabetes brands. We are positive on Sanofi's business due to the increase in lifestyle related diseases in India.
We project Sanofi's revenue / PAT CAGR of 15 percent / 17 percent over CY18-20 due to strong brand equity and favourable industry dynamics. We recommend Buy on Sanofi India with target price of Rs 7,446.
Brokerage: HDFC Securities
HG Infra Engineering: Buy | Target: Rs 386 | Return: 60%
HG Infra Engineering is an EPC company with focus on highways, roads and bridges in addition to civil works and water supply projects. It has been a sub-contractor for established players like L&T, Tata Projects and IRB Infra. Strong and persistent execution has helped it transform from a sub-contractor to a frontline EPC bidder.
HG has grown to pre-qualify for projects up to Rs 1,120/1,600 crore in EPC/HAM respectively. The transformation is visible, with HG quadrupling its revenues over FY13-18.
With a further pickup in NHAI orders in second half of FY19E, EPC players will only add to their FY18E book/bill of around 3.3x. This should address longevity concerns on their earnings up-cycle. For HG, EPS should rise to Rs 24.7 per share in FY20E.
HG has a firm grip over working capital (and hence, debt) and should deliver high RoEs more than 20 percent. We initiate coverage with a target price of Rs 386 (valuing core EPC operations at 15x FY20E EPS).
Brokerage: Anand Rathi
Khadim India: Buy | Target: Rs 976 | Return: 29%
We initiated coverage on Khadim India with a Buy rating and a target price of Rs 976 based on 16x FY20e EV/EBITDA. We believe it is best positioned to benefit from the domestic footwear industry shifting towards branded footwear.
We anticipate it reporting a 19 percent revenue CAGR over FY18-20 driven respectively by its dual strategy of expanding its retail network (a 16 percent revenue CAGR) and its distribution channel (a 25 percent revenue CAGR).
Driven by operating leverage kicking in and lower interest costs we expect Khadim to deliver a 28 percent PAT CAGR over FY18-20. At the CMP, the stock trades at an EV/EBITDA of 13x FY20e, a 35 percent discount to its peers (such as Bata and Relaxo).
Source: https://www.moneycontrol.com/news/business/markets/rbl-bank-prabhat-dairy-among-top-10-stocks-that-could-return-up-to-60-2915831.html
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