Diwali Stock Picks 2020: APL Apollo Tubes, Alembic Pharma, Airtel to Nestle, 7 stocks to buy to welcome Goddess Lakshmi
IDBI Capital picks 7 key stocks for investors for long term investment. They are APL Apollo Tubes, Alembic Pharma, Bayer CropScience, Bharti Airtel, Johnson Control, Nestle India and Supreme Industries.
IDBI Capital has unveiled its Diwali stocks picks for investors to welcome Goddess Lakshmi this festive season!
First pick is APL Apollo Tubes, the market cap of the company is Rs 7,681 cr, at the current market price of Rs 3130. IDBI Capital advises to buy with a target of Rs 3740 ( 20% potential upside). APL likely to gain market share: APL is the largest player in the ERW pipes in India. In the past decade, APL has outperformed industry growth by gaining market share from small and unorganized players. Currently, unorganized players are struggling with working capital, debt issues, etc after the lockdown. Hence, APL Apollo to gain market share over FY20-22E. IDBI Capital expects strong recovery in volumes and profitability from H2FY21. APL‘s stock is trading at an attractive valuation of 17x FY22E P/E given that its EPS will grow 50% in FY22E.
Second pick is Alembic Pharma, the market cap of the company is Rs 18,853, at the current market price of Rs 963, IDBI Capital advises to buy with a target of Rs 1360 ( 41% potential upside). U.S. sales (43% of FY20 revenues) grew at 12% CAGR in FY16-20 to Rs 20 bn on the back of consistent product launches including limited competition products. Despite being a late entrant, the company has done reasonably well with a product basket of 198 ANDA filings (67 pending final approval). Company's EBITDA margin improvement of 4 bps YoY in FY20 was primarily on account of operating leverage with higher revenue. Fixed costs like other expenses, employee costs are lowered.
Third pick is Bayer CropScience, the market cap of the company is Rs 23,793, at the current market price of Rs 5353, IDBI Capital advises to buy with a target of Rs 6850 ( 28% potential upside). IDBI Capital believes the agrochemicals segment is least affected due to any natural calamity as food cultivation remains at the heart of any activity in the country. So impact of Covid-19 on Bayer crop would be negligible unlike other most of the companies which are struggling during the pandemic. Also, anti-China sentiments may drive the shift of the manufacturing hub from China to India, which would benefit the company in a longer run. The company enjoys a unique position in the domestic agrochemical space due to its ability to offer new innovative products. Bayer Crop’s acquisition of Monsanto India resulted in a bigger entity in agro-chemical and seed. This will unlock the growth potential of Indian agriculture as a global producer and exporter of food, feed and fiber. Further, the merger has resulted in cost efficiencies and revenue synergies and would result in incremental earnings growth for Bayer Crop.
Fourth pick is Bharti Airtel, the market cap of the company is Rs 2,46,345 cr, at the current market price of Rs 452, IDBI Capital advises to buy with a target of Rs 620 ( 37% potential upside). . It is India’s second largest telco. Importantly, the Indian market has only two strong players viz. Jio and BHARTI. In India, BHARTI provides wireless services, mobile commerce, fixed line services, high speed home broadband, DTH, enterprise services including national & international long distance services to carriers. Further, BHARTI has a strong market share in the premium subscribers (postpaid / high pre-paid) which places it well to take advantage of increasing data consumption and expected increase in ARPU. EBITDA margin improves to 44.4% in Q1 FY21 vs 41% in Q1 FY20. BHARTI expects ARPU to structurally improve from the current levels with augers will for its earnings growth.
Fifth pick is Johnson Control, the market cap of the company is Rs 6,019 cr, at the current market price of Rs 2,191, IDBI Capital advises to buy with a target of Rs 2,970 ( 36% potential upside). The company is engaged in the business of manufacturing , selling and trading of ‘Hitachi’ brand of products including room and commercial air conditioners, refrigerators and air purifiers. The government has taken several initiatives to promote domestic manufacturing of ACs and its components such as Phased manufacturing programme, review of FTA’s and Quality Control Order for component imports. These schemes will help in reducing import dependence and promote indigenization through backward integration. Additionally, it has added a lot of retail touch points in tier 2&3 cities . It has expanded its distribution reach to 10,000 retail touch points (up 150% in 5 years) across 1,350 cities.
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Sixth pick is Nestle India, the market cap of the company is Rs 1,65,870 cr, at the current market cap of Rs 17,119, IDBI Capital advises to buy with a target price of Rs 20,820 ( 22% potential upside). Nescafe, Maggi, Milky Bar, Milo, Kit Kat, Bar One, Milkmaid and Nestea are some of the key brands of the company. Nestle India is the 3 rd largest FMCG company in terms of revenue. The key business segments include milk products and nutrition (46% of revenue), prepared dishes and cooking aid (29% of revenue), powdered and liquid beverage (12% of revenue) and confectionery (13% of revenue). The management has guided for Rs 26 Bn capex (equivalent to total CAPEX done over last 8-9 years) over next 3-4 years to develop a new factory in Sanand, Gujarat and enhance existing capacities.
Lastly, IDBI Capital picks Supreme Industries, the market cap of the company is Rs 18,771 cr, at the current market price of Rs 1459, IDBI Capital advises to buy with a target price of Rs 1,765 ( 21% potential upside). Supreme Industries is one of the largest players in Indian PVC pipes segment with 10% market share. Also, it is the second largest plastic furniture manufacturer with 13% market share in the domestic market. With a capex of Rs 2.4 bn, company has increased its capacity to 636,000 TPA in FY20 and plans to take it to 700,000 TPA by FY22E. The management is focused on increasing the share of value added products in total sales, which has increased from 25% in FY10 to 38% in FY20. The management focuses on both volume as well value to increase its share of value added products in total sales. This has resulted in an improved share of value added products in total sales to 38%, a robust growth of 1,300 bps over FY10 - FY20.
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