Prabhudas Lilladher believes that current uncertainty is a passing phase and return to normalcy will result in several beaten down segments bouncing back strongly from FY22.
Here is a list of 15 largecaps
which could return 14-48 percent by next Diwali 2021:
Brokerage: Motilal Oswal
We believe the earnings normalisation cycle for SBI has begun and it remains the best play among the PSU banks, on gradual recovery in the Indian economy, with a healthy PCR of 71 percent, robust capitalization, a strong liability franchise, and improved core operating profitability.
HMCL is poised for faster recovery over other
2-wheeler peers due to its rural-focused portfolio and market leadership in the
entry and executive segments. Considering its improved competitive positioning
post BS6, HMCL should continue to see good demand with its economy-executive
focused portfolio.
UltraTech has a strong pan-India distribution
network and preferred supplier status for key infrastructure projects. This
places it in a good position to tap into expected growth in both retail and
institutional (nontrade) cement demand in India.
Dabur's investment case is strong, supported by:
(a) dedicated focus on the Herbal segment, (b) power brand strategy, (c) a
spate of new launches, (d) an increasing direct distribution reach and (e) cost
savings which would be plowed back into the business.
Brokerage: Kotak Securities
Domestic motorcycle retail demand has reached 90
percent of the last year levels and export motorcycle retail demand has reached
90-95 percent of the last year levels for the company, which is encouraging.
We expect company's sales volume to grow by 20.5
percent in FY22 and 14.6 percent in FY23. We expect gross profit per vehicle to
improve to Rs 21,154 in FY23 from Rs 19,307 in FY20 led by richer mix in the
domestic two wheeler segment and improvement in export mix.
We envisage a meaningful recovery in 2HFY21 based
on (1) a strong order inflow pipeline and (2) favourable gross margin trends
sustaining. Existing order backlog can drive a 25 percent YoY growth in
execution in absence of supply chain issues. While domestic market contributes
majority of order inflow and backlog, L&T is achieving diversification in
regions beyond Middle East.
We believe concerns around cigarette taxation in
view of stretched government finances and rising focus on ESG-compliant
investment are more-than-adequately priced in.
The stock offers a good combination of (1)
inexpensive valuations (13X Sep 22E PE), (2) healthy dividend yield (6%) and
(3) promise of solid LT growth in FMCG. We do not see any structural negative
emerge for ITC from the ongoing pandemic.
We expect SBI Life's VNB margins to expand 0.3
percent YoY to 19 percent in FY21 and further increase to 21 percent by FY23
led by (1) increasing share of protection mix, (2) pick-up in growth of
high-margin non-par savings post slowing down in Q2 & (3) margin expansion
in protection and non-par businesses.
We expect improving business momentum in 2nd half.
Strong persistency trends will cushion operating variance. We see revival in
APE growth from 2HFY21E.
Infosys impressed with excellent results and a
significant beat on revenues, EBIT (Earnings before interest and tax) and net
profit in Q2FY21.
Infosys to lead the industry on growth with success
in strategic priorities viz: scaling digital, large deal success, sales and
marketing augmentation driving better account mining and stability in
management ranks.
We believe Bharti remains a solid medium-term bet
on (1) improvement in sector fundamentals (regardless of whether the end game
is a 2-player structure or a 3-player one) and (2) sustained solid execution.
Management said that the current tariffs are still at low levels. They have
guided for Average Revenue Per User (ARPU) to move to Rs 200 in the short term
and Rs 300 in the medium term.
We expect Bharti to report free cash flow of Rs
17,227 crore during FY21-23 period. Bharti has sufficient cash on books with no
liquidity issues. Bharti can look at asset opportunities but the decision for
the same will not be based on pressure to reduce net
debt.
Brokerage: Anand Rathi
Going forward, global digital technologies are expected
to witness robust growth (around 20 percent CAGR in next five years) led by
robust growth in cloud, customer experience and robust growth in cloud native
technologies. TCS is expected to be a key beneficiary of this trend leading to
double-digit revenue growth over a sustainable period.
Brokerage: HDFC Securities
Domestic and wellness businesses should grow in
high single digits and low-mid teens, respectively. The stabilization in the
price erosion in the US generics business coupled with a strong pipeline would
drive growth in the US business. It has reduced net debt by Rs 2,700 crore to
Rs 4,030 crore through fund raising of Rs 1,000 crore (at the Zydus Wellness
level) and a better working capital cycle in H1FY21. We estimate revenue CAGR
of 8 percent over FY20-22 led by strong growth from wellness business, US
market and domestic formulations. We project 150bps margin expansion led by
gross margin expansion and operational efficiencies over FY20-22. Healthy
revenues, better operating performance and lower interest expenses could drive
16 percent PAT CAGR over the same period.
The near term uncertainties and the US FDA issues
at Moraiya plant would be an overhang on the stock, until successfully
resolved.
Brokerage: Aditya Birla Capital
Nestle with its strong parentage has built a strong
brand with high brand recall and quality assurance. It enjoys leadership
position in around 85 percent of its products with milk products and nutrition.
Since the Maggi incident, it has completely changed
its approach from profitability driven growth to volume based growth approach
where it has launched many products in short intervals and is aggressively
increasing its reach. Given its strong parentage, Nestle globally has many
product categories as well as many variants of the existing products which it
is yet to launch in India.
Nestle has shown signs of aggressive growth in its
existing categories as well as new categories. It is on path to lead with
volume led growth, innovation based launches and increase in penetration. All
these factors make us confident of sustainable growth story of Nestle and makes
it most preferred bet in the FMCG space.
Brokerage: Prabhudas Lilladher
Hindustan Unilever
Hindustan Unilever (HUL) remains one of the best
plays on HPC and foods segment given strong growth and margin outlook, high
free cash flow conversion (5-year average of over 90 percent), 95 percent
dividend payout and 18.2 percent PAT CAGR over FY21-23. We expect strong growth
in coming couple of years led by 1) gradual recovery in personal care post
COVID 2) market share gains in Laundry and Personal wash due to aggressive
pricing and 3) Distribution and integration benefits from Glaxo Acquisition.
We remain structurally positive on HUL given its
strategy around emerging categories, increasing distribution, WIMI, digital
market and strength in Supply chain.
Dr Reddy's Laboratories
Dr Reddy's fortune turned around after Erez Israeli
(CEO from CY-19) laid down the roadmap for transformation of the organization
by ensuring clear strategic focus, effective cost management for sustainable
growth. DRRD is one of the few companies whose all plants stands cleared by
USFDA and have a strong product pipeline with high value and limited
competition products like gCopaxone, gNuvaring, gVascepa, gKuvan and gRevlimid.
Its domestic formulations is also expected to
outperform the IPM by 400-500bps once COVID concern fade while emerging markets
would also spur growth with new launches. DRRD had been delivering EBITDAM 20%+
even before lockdown on a consistent basis. With better cost control than peers
and strong product pipeline for US and EM, we estimate EPS CAGR of 15 percent
over FY20-23 and value DRRD at Rs 5,964.
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