From SBI to Gail India, these 6 stocks can be top bets on Dalal Street before June, 2019 ends
While, RBI’s policy has played a positive role for Indian market, it would be interesting to watch how investors react to Budget 2019.
After the Reserve Bank of India (RBI) monetary policy this month, all focus has shifted towards the full and final Budget 2019 presentation scheduled on July 05, which will be presented by new Finance Minister Nirmala Sitharaman. While, RBI’s policy has played a positive role for Indian market, it would be interesting to watch how investors react to budget 2019. Sensex and Nifty have already outperformed emerging market peers in May 2019, by touching all-time highs. Gains arising from these two benchmarks were nearly 2.28% and 2.12% respectively last month. Investors' joy on Dalal Street was caused by Lok Sabha Elections where a historic win was scripted by the NDA government. Also, cabinet positioning along with Prime Minister Narendra Modi’s oath ceremony played a positive factor.
What you can do now is place your stock bets before Budget session begins. Experts at Kotak Securities have listed 6 stocks which are placed well in their sector, and these can be eyed on Dalal Street in June, 2019.
Sanjeev Zarbade, analysts at Kotak Securities said, “The market has rallied strongly post the announcement of the Exit Polls. With the ruling NDA set for another five-year term, political risks have reduced and market expectations of government’s continuity have been addressed. There would be renewed expectations for a more reforms-oriented policy agenda in disinvestment, Goods & Services Tax (GST) simplification, labor reforms, the ease of doing business and land acquisition.”
Beyond Elections/Budget, Zarbade said, “we believe that the market is likely to focus on the growth cycle as we move into the 2H of 2019.”
On Nifty ahead, Zarbade says, “We note that the Indian market (Nifty-50 Index) is trading at 19.3x FY2020E ‘EPS’ assuming a 24% increase in net profits in FY20 and at 16.3X FY2021E ‘EPS’ assuming 18% increase in net profits in FY21 (based on inhouse estimates). We also note that Fw valuations of Nifty is trading at a 17% premium to the long term average valuation of 16.5x. Based on Bloomberg estimates, the Mid Cap Index is now at trading at 15.5x Fw PE Vs 18.5x Fw PE of Nifty-50. The Mid Cap Fw PE now trades at 16.1% discount to Nifty Fw PE. We expect Nifty to trade between range of 12,500-13,000 by Mar 20 (average 12750), based on 17-18x Fw target multiple.”
Here’s a list of six stocks you should buy before June 2019 ends, as per Zarbade.
Zarbade says, “We expect the company to benefit from imminent upward revision in regulated tariffs for key pipelines, sustainability of gas marketing profits at reasonable levels and potential turnaround in the petchem segment. We expect gradual improvement in operating performance across key segments. We revise our standalone EPS estimates to Rs.31.8 (-2%) for FY2020 factoring in (1) lower petchem realization (- ve), (2) lower domestic gas price (+ve) and (3) other minor changes.”
Thereby, Zarbade has valued GAIL stock at Rs455 per share based on FY2021 estimates.
GAIL’s management indicated that the entire long-term LNG volumes for CY2019 and ~90% for CY2020 have been placed through well-hedged contracts; excess volumes beyond CY2020 may be off-taken by five new fertilizer plants expected to commission by end-FY2021.
Power Grid Corporation:
PGWR reported net income of Rs30 bn (+65% yoy) for 4QFY19, 26% ahead of estimates. The size and stability of its portfolio enables PWGR to enjoy (1) lower cost of debt compared to peers, (2) favorable cost and payment terms from contractors, and (3) lower operating and maintenance cost.
“With PWGR starting investment in interstate transmission infrastructure, we build a high growth earnings trajectory for the company up to FY2022E based on incremental project visibility. Street concerns on PWGR’s ability to compete profitably under TBCB may seem unfounded as (1) TBCB will still form a very small proportion of the overall asset base, (2) PWGR is able to fend off competition on the back of lower cost of capital as well as capex cost, and (3) early numbers show PWGR is doing well on the return profile even under TBCB projects,” says Zarbade.
Hence, PWGR is attractively valued and will likely continue to deliver ahead of peer returns. Maintain BUY rating with unchanged fair value of Rs235/share.
State Bank of India:
SBI reported a profit of Rs.8 bn in 4QFY19 on the back of healthy NII growth at 15% yoy and stringent cost control (operating expenses up 13% yoy). Calculated slippages dropped in 4QY19 on the back of decrease in slippages from the corporate book (adjusted for slippages from an aviation account worth Rs.12 bn). CASA ratio stood at 44% in 4QFY19 (up 50 bps qoq) led by 9% growth in SA balances while CA growth was modest at 8% yoy.
“We maintain BUY rating on SBI with a fair value of Rs.410 (unchanged), valuing the bank at 1.2X book and 7X March 2021E EPS for RoEs in the range of ~15% in the medium term,” says Zarbade.
Surya Roshni Limited:
As per management, though at the nascent stage, company has been exploring the potential benefits/opportunities that can be achieved by the demerger of these two unrelated business. Zarbade says, “We believe that the corporate action would likely provide an enhanced focus on both the businesses and narrow the valuation gap of the B2C business vis-àvis peer group.”
Surya Roshni is India’s second largest player in the lighting industry with dominating presence in tier-ii/iii cities and rural areas. Various welfare schemes, introduced by the Indian government and rural electrification drive could potentially benefit company’s operations going ahead. Adding Zarbade says, “We tend to believe that this will help Surya Roshni outpacing the industry growth over the next few years.”
A buy rating with a target price of Rs 328 is set on the company.
Welspun Corp Limited:
During Q4FY19, the company entered into agreement to divest (non-core assets) PCMD and 43 MW Power plant at a consideration of Rs9.4bn. The PCMD transaction is expected to complete by end of Dec’19 (power plant by May’19). During FY19, PCMD reported negative EBITDA of Rs840 mn. The transaction will strengthen the company balance sheet by providing enough liquidity and deleverage the balance sheet. We believe RoCE to expand by 350 bps, post the completion of the transaction.
“With the leaner balance sheet and completion of capex cycle, Free Cash Flow is expected to improve backed by strong operational performance,” explained Zarbade. Hence, a target price of Rs 171 is given on Welspun with buy rating.
The Phoenix Mills Ltd:
Company has commenced work at all under development assets – at Hebbal Bengaluru and Pune, Lucknow & Palladium at Ahmedabad and company is well placed to achieve its target of 11-12 msft of operational retail portfolio by FY23.
In Zarbade’s view, “We believe that rental renegotiations, new project launches and completion of under-construction assets are likely to maintain healthy performance for the company going forward. Residential revenues are likely to witness contraction going forward due to revenue recognition largely done during FY19."
Hence, the analyst has set a target price of Rs 754 on The Phoenix Mills.