Stock recommendations: Dewan Housing, Karnataka Bank and more

These are four stocks which brokerage houses/ experts have recommended in the long term.

Dewan Housing
Angel Broking: Buy
Target price: 712

Loan growth to remain strong going ahead: Backed by healthy capital adequacy and increasing demand for home loans

DHFL's loan book is expected to report 23% loan growth over next two three years.

Strong capital adequacy lends visibility for growth: DHFL sold 50% stake held by it in DFHFL Pramerica Life Insurance Co Ltd which added Rs 1,969 crore to its net worth and increases its CAR by 400 bps, to 19.3% which should fuel growth for next 2-3 years.

Asset quality has been strong: Strong NIM on the back of lower cost of funds and lower credit cost will ensure healthy return ratios for the company. Despite strong growth the company has maintained stable asset quality and we expect the trend to continue. ?

Outlook: We expect the company's loan growth to remain 23% over next two years and earnings growth is likely to be more than 28%.The stock currently trades at 1.9x FY2019E ABV. Angel Broking maintains Buy on the stock with a target price of Rs 712.

Titan Company

Geojit Research: Accumulate

Target Price: Rs 867                                   

Higher focus on studded and wedding jewellery to spur the next leg of growth.

Titan Company Limited (Titan), a Tata Group company, is India's leading watches, jewellery and eyewear retailer. Currently, Titan has 1,415 stores with 1.8 million sq ft of retail space. " Titan reported solid performance in Q2FY18 with a robust standalone revenue growth of 30% YoY driven by stellar performance of jewellery segment."    

Despite the impact of Prevention of Money Laundering Act (PMLA) and GST, Jewellery segment witnessed a stupendous growth of 36% YoY due to up-stocking on account of festive season. "    

EBITDA grew impressively by 55% YoY with 200bps improvement in EBITDA margin to 12.4% in Q2FY18 owing to the benefit of operating leverage and better cost management. "    

We factor jewellery revenue CAGR of 22.8% over FY17-20E on the back of market share gains owing to new collection launches focusing more on wedding & studded jewellery and store expansion. "

We estimate overall EBITDA margin to expand from 8.9% in FY17 to 10.6% in FY20E on account of strong growth and higher contribution of studded jewellery. "    

Strong growth potential and market share gains owing to renewed focus on wedding & studded jewellery commands premium valuation. Upgrade to 'ACCUMULATE' with a revised TP of Rs. 867 based on 45xFY20E EPS.

Karnataka Bank

G. Chokkalingam, Equinomics: Buy

Target price: 220

We remain very confident of Karnataka Bank stock considering its price to adjusted book value, business size and its yoy growth, and consolidation process, which has set in this Old Private Sector Banking space about two decades ago. Hence, we continue to suggest a BUY on the stock; Banking stocks got corrected as the RBI maintained Status Quo in its fifth monetary policy.

However we believe that the outcome won't affect much as the rate cycle has bottomed out while there are signs of industrial economy picking up which will lead to improved credit demand from the industrial sector.

The Price to Adjusted Book value multiple as well as Net NPA of Karnataka Bank are much lower than those of Lakshmi Vilas Bank (LVB) and Karur Vysya Bank. However, LVB and Federal Bank scores on faster credit growth; It is also worth noting that Karnataka Bank has beaten Karur Vysya Bank in terms of Asset Quality which was far superior for Karur Vysya Bank for several years.

On relative valuations the stock trades very cheap at 1.2x its Q2FY2018 Adjusted Book Value and at 0.8x its FY2019E Adjusted Book Value of Rs 177.1. Considering the cheap valuation, opportunity for further consolidation in the OPSB space and management's initiatives, we continue to recommend a BUY on the stock at the current market price with a target price of Rs.220/ (which is 1.2x its FY2019E Adjusted Book Value of Rs.177.1).

DISCLOSURE: G. Chokkalingam personally HOLDS shares of Karnataka Bank. Hence, investors are advised to consider this fact before investing in this stock.  

Godrej Consumer Products (GCPL)

Reliance Securities: Buy

Target price: Rs 1,120

Godrej Consumer Products (GCPL) closed 0.76 percent lower in trade today at Rs 993 compared to 1.22% rise in the benchmark Nifty.

GCPL is the market leader in domestic hair colour and Household insecticide segment with marquee brands like GoodKnight, Hit, Godrej Xpert and is the second largest player in the soaps market with brands like Cinthol and Godrej No.1.

GCPL also has presence in emerging economies of Asia, Africa and Latin America, which account for close to half of GCPL's consolidated sales.

We expect recovery in the domestic business in the coming quarters on the back of good monsoons, trade stabilisation post GST rollout and benign input cost environment.

Strong new product pipeline, recovery in international business and improving product-mix should enable GCPL to post 13% revenue and 18.5% earnings CAGR through FY17-19E.

Based on earnings per share of Rs 27, the stock currently trades at 37x FY19E earnings.

We have a BUY rating on the stock with target price of Rs 1120.