Infy, Emami, PVR among SMC’s top 11 stock picks; can give 27% in a year

NEW DELHI: With the domestic stock market swinging between gains and losses, stock selection holds the key to protecting your capital from volatile market movements.

The S&P BSE Sensex has lost close to 7 per cent so far in calendar 2016 weighed down by sliding crude oil prices, China jitters, selling by foreign institutional investors (FIIs) and muted December quarter corporate earnings by India Inc.

The December quarter earnings season has been mixed so far and companies that disappointed the market expectations were heavily punished on the bourses.
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SMC Research on Wednesday came out with a list of 11 stocks to play in a volatile market and which, it said, could deliver up to 27 per cent returns over the next one year:



Infosys: Target price Rs 1,290 The IT major's latest offering, AiKiDo, aims to provide next-generation services to its clients enabling them to stay abreast with the evolving digital landscape. With Vishal Sikka at the helm of operations as the CEO& MD, Infosys has shown renewed thrust and is confident of firing on all cylinders.

The stock is currently trading at FY16/17 P/E of 19.59/17.10 times. After considering continues revenue growth, improved guidance and the management focus on the operation, given Infosys edge over other peers. “We have a buy rating on the stock with a target price of Rs 1,290 per share at 19.94 times FY17e PE,” the brokerage said in a note.

HCL Technologies: Target price Rs 980 HCL's investments in global delivery centers, co-innovation labs and hiring of senior managers have started to pay off, which underpins the management's confidence on retaining its 21%-22% EBIT margin band for H2 of FY2016. The management has reiterated that 2HFY2016 (Jan-June) would produce healthy traction for them. However, H2FY2016 is always being demonstrative for HCL Technologies as furlough effect gets over, large company place long term order with the company, winning rate improves and moreover, the March-ended quarter has historically been a good for IT companies.

The stock is trading at FY16/17 PE of 15.50/13.60 times. Considering an EPS growth rate of 3 per cent in FY2016 and 15 per cent in FY2017 and current PE of 16.80 times, SMC Capital has a buy rating on the stock with a target price of Rs 980 per share, at 13.70 times FY17e PE and 10 per cent discount to TCS PE.

UltraTech Cements: Target price Rs 3,050 The capacity utilisation at Aditya Birla Group's Ultratech Cement Ltd. is slated to increase from 62mtpa to 76mtpa including the 5mtpa capacity of JP Associates' Madhya Pradesh Plant post the completion of the merger process.

Even the management is inclined towards building capacity through organic routes, for which they have acquired land to set up manufacturing units in the recent past. “The government's thrust on infrastructure development and the current valuation makes us optimistic about the future prospects of Ultratech Cement,” the brokerage said.

The brokerage firm has valued Ultratech Cements on the basis of 13.5 times EV/EBITDA and $210 for FY2017E to arrive at a target price of Rs 3,050. It has a buy rating on the stock at the current level.

Emami: Target price Rs 1,160 Emami is among the flourishing FMCG companies in the country and its product portfolio boasts of household brand names in the beauty, personal and healthcare category.

Fair and Handsome, Zandu Balm, Navratna, Boroplus and the recently acquired Kesh King are some of the prominent brands marketed by Emami. The domestic brokerage firm likes Emami’s portfolio of niche products with dominant market share and its strong innovation backed track record.

Higher RoE and domestic focus insulate the company's revenues from currency fluctuations unlike some of its FMCG peers like Godrej Consumer Products.

However, in the backdrop of a delayed winter season and a delayed summer season (generate 45% of revenues) the current PE valuations appear to be only at a marginal premium. It trades at PE of 32 times FY17E EPS based on current price. While, in the immediate term it appears to trade at a marginal premium,

SMC says the current PE valuations appear expensive but are justified given the robust growth potential Emami has over the longer term. Investors can look for an upside of 15 per cent over the medium to longer term with a target price of Rs 1,160, the SMC note said.

Jagarak Prakashan: Target price Rs 197 Jagran Prakashan (JPL) is one of India's leading communications and media groups and is now venturing into a fresh vertical which complements its existing media portfolio. There are a lot of factors which make SMC turn positive on the stocks because pre-dominantly their print portfolio consists of Hindi and vernacular publications. But now, the Hindi and vernacular print market is relatively isolated from the digital frenzy.

Secondly, for advertisers, print media is the most cost-effective mode of reaching out to the audiences in smaller cities and towns. "Both these factors lead us to believe that the Hindi & the Vernacular print market would outpace the English print market in both value and growth terms which would ultimately bode well for JPL," said the note.

Radio business acquisition at attractive valuation and growth in advertisement revenue made us bullish on this stock. They have recommended a buy rating on JPL with a target price of Rs 197 on the basis of 16 times and 13.7 times PE for FY16E and FY17E.

PVR: Target price Rs 869 PVR is one of India's premium multiplex operators holding the highest market share (26 per cent) of the industry.The revenue driver for PVR is the big canvas movies and quality content being released.

With a slew of multi-starter and big banner movies slated to release in the coming year like "AirLift", "Sultan", "Jaga Jasoos","HouseFull3", "Fan", "Dangal", SMC foresees PVR would be in a good position to draw footfalls which would ultimately translate into growth in revenues.

SMC Capital has a buy rating on the stock at the current level, valuing at EV/Ebitda multiple of 16 times FY17E with a target price of Rs 869. It expects the long-term revenue growth in the range of 21-22 per cent.

Eveready Industries: Target price Rs 300 Eveready commands a leadership position in the flashlights market with a 70% market share and a 52% share in the dry batteries market. In the domestic markets, Eveready also sells packet tea under the brand names 'Tez', 'Jaago', 'Premium Gold' and 'Classic'.

Given its leadership position in the dry battery segment as well as in the flashlight market (70% market share), the company is well positioned to tap the huge opportunity that lay before it in the LED Lighting market.

Besides, high return ratios and improving margin profile are a positive. "Thus at a P/E of 20.5x its FY17E EPS (consensus) the stock is attractive at current levels and we believe, could see an upside of 20% over the longer term horizon translating into a target price of Rs 300," said the SMC note.

VRL Logistics: Target price Rs 470 VRL Logistics has been in existence for over 40 years in the Road Transport business and is amongst the prominent logistics players in the organized segment with a pan-India presence.

The continued decline in oil prices is positive for VRL at the macro level and the company is also increasing its reliance on alternative, bio-fuel which helps them save Rs 5-7 on each litre consumed. Currently, biofuel comprises 12% of total fuel consumed by VRL which is expected to increase going ahead.

SMC Capital has a buy on VRL with a target price of Rs 470 on the basis of 22.1 times and 19.0 times PE for FY16E and FY17E, also EV/Ebitda of 10.3 times and 9.2 times for FY16E and FY17E.

"We believe the company will benefit from the current and near-term opportunities like a decrease in oil prices, introduction of GST and spreading out the network to improve its operational performance which will thus positively impact the profitability," said the report.

Vinati Organics: Target price Rs 460 Vinati Organics (VOL) is the world's largest manufacturer of Isobutyl benzene (IBB), which is the basic raw material for the manufacture of the Ibuprofen bulk drug. It began commercial production of IBB at its factory in Mahad in 1992 and has expanded its capacity in phases to 16,000 TPA.

"We expect the company to maintain its leadership position in IMM and ATBS. Besides, a diversification of product portfolio too will aid revenue growth going forward," the SMC Capital note said.

At current levels, the stock trades at an attractive PE of 14.3 times FY17E EPS (consensus). “We hold a positive stance on this Niche specialty chemical company and recommend adding this stock to their portfolio with a target price of Rs 460, which offers an 11 per cent upside over the medium to long term," added the note.

Moldtek Packaging: Target price Rs 333 Moldtek Packaging is amongst the leading packaging players in the organised segment enjoying the first mover advantage in the In-Mold Labelling packaging industry in India.

The introduction of In-Mold Labelling Technology (IML) in India for the first time since 2011 has ensured that company is able to maintain its first-mover advantage in the rigid plastic packaging segment. This is likely to translate into higher operating margins.

The domestic brokerage firm retains its buy rating on MTEP with a target price of Rs 333 as they believe it continues to trade at an attractive P/E 17x/14.5x of its FY16E/FY17E EPS and also on EV/EBIDTA of 10.3x/8.4x for FY16E/FY17E.

Plastiblends India: Target price Rs 482 Plastiblends India (PIL) is a manufacturer and exporter of Masterbatches, a product which finds application in the plastic processing industry. PIL is expanding its manufacturing capacity from the current 75,000 MT by setting up a new facility in Surat, Gujarat.

The company has grown at a 13% CAGR in revenues to Rs 4.9bn and 21% CAGR in earnings to Rs 301m over the FY12-FY15 period. The stock trades at a P/E of 15x its annualized FY16 EPS which is fair given the growth prospects.

"We give buy rating on the stock with target price of Rs 482 Plastiblends India is focusing on improving the share of high-value products (additives or compounds ~ 15% currently) and increase in export revenue share,” the brokerage said.

With the softness in current crude prices, it is hopeful of demand pick-up for the plastic industry as a whole. However, the business still is majorly commodity driven and significant P/E re-rating has already happened in the recent months.

Thus, investors with a long-term horizon could consider accumulating this stock at price dips.

(Views and recommendations given in this section are the analysts' own and do not represent those of EconomicTimes.com. Please consult your financial adviser before taking any position in the stock/s mentioned.)